Used car prices are at record highs as demand continues to exceed supply amid the ongoing microchip shortage. Used car prices are up 30.4 percent over last year, which amounts to more than $8,000 in average price increases for a used vehicle compared to last year. New car prices have risen too, with the average new car transacting above sticker price. Car companies have also slashed incentives due to the shortage of new cars, which has elevated the average price paid for new cars and caused buyers to pay over MSRP.

The current car market has led many consumers to wonder if they should buy a car right now or wait for prices to come down. Here are some important car buying tips to help shoppers navigate the challenging new and used car market.

1. Wait If You Can

The best financial decision is to wait to purchase a new or used car and to keep your current car for as long as possible. New car inventory is expected to improve beginning in the second half of 2022, which will also create more used car inventory as buyers trade in their old cars. However, the longer you can wait the better, as there is a lot of pent-up demand in both the new and used car marketplace. Higher prices and reduced inventory on dealer lots are expected to persist well into next year. Also, used car prices have fallen since January, but will likely rise in the next couple of months as consumers receive their tax returns.

2. Be Flexible

It’s important to be flexible if you need to make a new car or a used car purchase. That means if you want the best possible deal, you’ll likely have to be flexible on the make, model, trim, and color of the vehicle. For new cars , many of the most in-demand cars are selling for above MSRP. To avoid these price hikes, you can consider a less-popular model that may not have the same price increases. Or, you may have to settle for a different vehicle trim level or color. The same goes for used cars, as less popular models will likely not command the used car price increases as the most in-demand vehicles. Being flexible also applies to where you are looking for the car. If you are willing to cast a wider net to neighboring states, you will increase your chances of finding the vehicle you are looking for, and time/energy spent retrieving the car could still save you money overall.

3. Trade-InWhile the Market is Hot

If you have a vehicle you can trade in, you should take advantage of the high trade-in values. Perhaps you have an extra vehicle that you don’t drive often or maybe you are a city-dweller who can make due without a car. You can even consider trading in a more expensive gas-guzzler like a pickup truck for something more fuel-efficient like a sedan or electric vehicle (EV). Even though small vehicles, hybrid cars, and electric cars are in high demand right now, you could end up saving money in both the short and long term by purchasing a more efficient vehicle.

4. Consider Buying Out Your Lease

Just like new and used car prices, lease rates are also high right now. If your lease is ending, your best financial decision is likely to take advantage of your vehicle’s high residual value and purchase your car at the end of your lease term instead of leasing another vehicle. When you signed your lease, you were given a buy-out price. And because the start of your lease was before the pandemic, supply chain issues, and chip shortage, that buyout price is likely well-below current market value. That means you can buy your car and either sell it for a profit or keep it as your transportation until the market stabilizes.

5. Compare New and Used Prices

Buying a lightly used car used to be a guaranteed way to save on buying a vehicle. However, many used cars are selling for more than their new versions. Shoppers looking for lightly- used cars should always compare the prices to new cars , and buyers who are unable to find the new vehicle they are looking for should avoid models with the highest price increases if they decide to purchase a used car instead. It’s worth noting that interest rates are usually lower on auto loans for new cars , which should also factor into your decision.

6. Always Do Your Diligence

Even though the used car market is highly competitive, you should always make sure you test drive the vehicle and obtain a vehicle history report. Going through a car dealer isn’t the only way to obtain a vehicle history report. Online research tools like the iSeeCars free VIN check can provide a free CARFAX or Autocheck report as part of its comprehensive VIN check tool, which will also help answer all the important questions car shoppers should ask before making their purchase. Be sure to refer to our How to Buy a Used Car guide for more used car buying tips.

7. Know the Best Times to Buy

If you’re able to wait, you should be aware that certain times of the year are more likely to result in savings on a used car . The best time to buy a car is at the end of the year in November and December due to a high volume of trade-ins as buyers take advantage of end-of-year sales and incentives. This is also after new model year vehicles come out, so dealers want to move their older inventory to make room on dealer lots . Holiday weekends such as Thanksgiving and Veterans Day provide a lot of savings opportunities. While holiday savings aren’t prevalent in the current market , we can expect them to return when the market stabilizes.

Bottom Line

With record high vehicle prices on new and used cars, it’s a challenging time to be a car buyer. Automakers are still struggling to keep up with demand due to the ongoing supply-chain disruptions from the semiconductor shortage, but inventory is improving on car dealership lots. If you’re buying a car in the near future, you likely won’t be able to escape the high prices, but if you’re smart you can find the best price possible.

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