Car prices are historically high. New cars now sell for a near-peak average of more than $50,000, while the average list price of a used vehicle has risen 7% over the past year, to more than $27,000, according to Cox Automotive.

Tariffs, lingering supply constraints and ongoing inflation are among the reasons for the significant increases. And while purchasing a car today will cost you more than it did just a few years ago, smart shoppers can use strategies to stay on budget.

One of the most effective: Buy at the end of the year, when dealers and sales associates are highly motivated to both clear out old inventory and hit their annual sales targets. "The week between Christmas and New Year’s is probably the best time to buy a car, and the reason is that a confluence of things occur at that time," says Ray Shefska, cofounder of CarEdge, an automotive marketplace and consumer-advocacy platform.

Automakers often see December as their chance to roll out extra year-end or holiday incentives to help them finish the year strong. These incentives might include special financing rates, cash-back rebates or other discounts.

Research from Cox Automotive found that sales incentives on new cars offered last December averaged 7.5% of the transaction price, the highest level recorded all year.

Whether you plan to shop for a car in the coming weeks or are preparing for a purchase further down the road, use these tips to score the best deal.

Narrow your selection

Knowing what you want at the start of your car-shopping journey can save time and make the process less stressful. Focusing on certain types of cars may allow you to stretch your budget further.

Consider an EV

If you’re interested in an electric vehicle — especially given rising gas prices — you’re in luck. Good deals are available now on EVs because many consumers who leased them during the pandemic are returning them, and demand has lagged the supply of new EVs as consumer preference for them slows.

Many drivers hesitate to go all-electric given the potential challenges — finding a public charging station on a road trip, for example, and waiting for the battery to charge once you get there.

"Generally speaking, there are more EVs available than there are buyers for them, so you tend to find them at lower prices, and you can negotiate more on them," says Karl Brauer, executive analyst at ISeeCars.com, a car-shopping search engine.

Although the federal government ended a tax credit of up to $7,500 for qualifying electric vehicles in September 2025, many dealers have stepped in with offers matching that $7,500 cash back.

Your state or local power company may also provide a rebate for an EV purchase. Check kbb.com/car-advice/electric-vehicle-rebates-by-state for a list of current incentives.

As you weigh whether an EV is right for you, keep in mind that it may not be the best choice if you cannot install at-home charging, live in a rural area without many public charging stations, or often drive in cold weather, which can drain batteries faster.

Keep an eye out for 2026 models

New 2027 models started hitting dealer lots months ago, turning 2026 models into "old inventory" that dealers are motivated to sell. That creates more negotiating opportunity for you.

"A lot of people don’t know that dealers are making payments on the cars on their lot, so the longer a car sits unsold, the more it has cost the dealer, and the more motivated they are to move it," says Sean Tucker, managing editor at Kelley Blue Book. "So if you find a 2026 model in December, absolutely, that’s going to be the cheaper option."

Even before you start negotiating, you’ll save by buying a 2026 model because prices for newer models tend to go up by about 3% per year compared with the previous generation. Plus, some manufacturers also offer incentives to move outgoing inventory as quickly as possible.

A downside to using this strategy: You may have fewer options when it comes to selecting the model, trim level or color of your car, because the selection will be slimmer.

"Don’t be quite as picky as you might normally be, and just take advantage of the fact that you’re able to save a lot of money," Shefska says.

Think small

Unless you have good reasons to buy a big car — you have a large family, say, or you regularly lug around equipment — consider a sedan or compact SUV.

The manufacturer’s suggested retail price for a new small car or sedan often starts at less than $30,000, making a small vehicle a compelling choice for the budget-minded. Small cars command lower prices than larger vehicles in the used-car market, too.

"Sedans can be a really good value because most people want SUVs now," says LeeAnne Shattuck, founder of The Car Chick, a car-buying service. "A lot of times people will overlook the nice, midsize sedans. So they will often have some better incentives on them than the more popular SUVs."

If you need a larger car for just a day or week a year (such as when family is visiting), you can rent one for far less than the amount you’ll save by purchasing a smaller car. Plus, smaller cars tend to get better gas mileage and have lower insurance rates.

An analysis from AAA found that the total annual cost of owning and operating a small 2026 sedan was 19% less than the expense of a compact SUV and 35% less than that of a midsize SUV.

"If you don’t really need a bigger car that costs more up front, costs more to fuel and costs more to insure, you probably shouldn’t buy one," Brauer says.

Check out reliable used cars

Edmunds data shows that a three-year-old, non-luxury certified preowned vehicle costs, on average, 4%, or $1,328, more than a traditional used vehicle. CPOs have passed a manufacturer’s inspection and come with like-new warranty coverage.

If you’re considering a used vehicle, those protections might be worth the premium over other used cars.

Aim to buy a CPO from a same-brand dealer — for example, a certified preowned Honda vehicle from a Honda dealership. "Dealer-certified" cars, sold by a different manufacturer, typically haven’t gone through as thorough an inspection and do not have the same warranty protection.

Prepare before you hit the lot

Doing some legwork in advance of visiting an auto retailer can save you money and give you more leverage in negotiations.

"If you haven’t done the research, it becomes a game where the dealer has more advantages," says Joseph Yoon, market insights manager with Edmunds.

Take these steps to set yourself up for success.

Figure out your budget.

Knowing your financial limit before you start shopping can help you avoid overspending and ensure that buying a car won’t compromise your other financial goals. "Dealership personnel are trained to extract as much money from the customer and as much profit as possible," Shefska says. "So it’s really important for a customer to understand what their budget is."

You can use calculators from Kelley Blue Book or LendingTree to help determine the right number. One rule of thumb: Aim to keep your car payment below 10% of your take-home pay, and your total auto costs (including gas, maintenance, insurance and parking) below 20%, if possible.

You can get an estimate of the total cost of ownership using the "Your Driving Cost Calculator" tool from AAA.

If you’re getting a loan, experts recommend putting down at least 10% or more of the car’s price, either in cash or through a trade-in. That will give you a buffer so that depreciation and high interest rates don’t leave you owing more on your loan than the car is worth.

Get pre-approved for a loan.

Shop around for your auto loan by getting quotes from at least three lenders, and get pre-approved for the best one before you enter the dealership. A 2023 research report from the Massachusetts Institute of Technology found that dealers had padded the rates of nearly eight in 10 auto loans in its dataset, with an average markup of 1.13 percentage points above the rate the dealer’s associated lender was offering based on its underwriting.

"You want to go into the dealership with your financing already lined up," Tucker says. "Then, if the dealer can beat it, great, let them beat it. But you’re not stuck with what they have to offer."

Going through the loan process early can give you confidence in your budget, letting you filter for cars in that range. But it may also serve a reality check: If it has been several years since you last bought a car, higher interest rates mean the transaction is likely going to cost you a lot more now.

"Even if you have a credit score in the 700s, you’re going to be looking at a rate in the high sixes or low sevens," Yoon says. "If you haven’t bought a car in a long time, that’s gonna feel deeply, personally insulting."

Shop online first.

Most dealers will now offer you a quote for a specific car online. Shoppers who started their car-buying journey online shaved more than 40 minutes off the time they spent at the dealership, according to Cox Automotive research.

In addition to saving time, shopping online also makes it easier to compare prices without heavy pressure from salespeople at the dealership.

Can’t find the car you want? Consider expanding your search radius. "If I offered you $2,000 to drive two hours, you’d probably take it," Tucker says. "So you should be willing to talk to a dealer that’s two hours away, if it’s going to bring the price down by $2,000."

Get the history of a used car.

If you’re looking at a specific used car, use the vehicle identification number on the listing to pull a vehicle-history report from a site such as Experian AutoCheck or Carfax.com. That report will give you insight into the car’s accident and damage history as well as its service records.

The report should also verify the car’s mileage, show how many past owners it has had and alert you to any open recalls.

"You should know everything you can about that car before you get to the dealership," Brauer says.

Sell your trade-in separately.

Planning to trade in an older car to offset the new car’s cost? Get an appraisal from a third party such as Carvana or CarMax, or shop it around to a few dealers. "You can trade in your car at one dealer and then use that money to buy from another dealer," Tucker says. "Get several offers on your trade-in."

If you want the convenience of selling your car to the same dealer you’re buying from, don’t negotiate your trade-in until after you’ve settled on the price of the car you’re buying. That way, the dealer won’t adjust the cost to make up for a generous purchase price.

Make the best moves at the dealership.

Once you’ve found the car you want, don’t let the salesperson rush you into a deal that does not work for you.

Have a test-drive-only day. Make appointments to test-drive the cars you’re interested in, but don’t plan to buy on the same day. Starting with that mind-set will prevent emotional decision-making and give you more time to compare options.

"If you can remain rational and not get drawn into having to have a car because you fell in love with it as soon as you test-drove it, then your chances of getting a good deal versus paying too much drastically swing," Brauer says.

Once you know which car you’re buying, you can come back to make the purchase.

Focus on the total price. Ask for an "out the door" price for any vehicle you’re considering. That number includes the cost of the car, plus any taxes and title or dealer fees, which can add up more than you think. An analysis by CarEdge earlier this year found that 90% of dealers added fees, worth an average of more than $300, and documentation fees varied by nearly $4,500.

Salespeople are trained to steer the conversation toward monthly payments, so having a firm OTD price makes it easier to run an apples-to-apples comparison among the vehicles you’re considering at various dealerships.

Focusing on the OTD price also prevents dealers from manipulating monthly payments to hide extra costs in add-ons such as gap insurance or extended warranties, or through longer loan terms. Shorter loans typically carry lower interest rates and can cost thousands less over the life of the debt.

"I discourage people from pushing that loan term out to anything past 60 months," Shattuck says. "You’ll pay a higher interest rate, and that car is going to depreciate much faster than you get it paid off, so you’re going to be upside down" on the loan.

Be willing to walk away. When the dealer knows there’s no guarantee that they’ll make a sale, the balance of power shifts in your favor. You can always purchase a car from another dealer, and walking away is your primary source of leverage during these negotiations.

Should You Buy New Or Used?

Although used cars still cost less than new cars, the price gap has narrowed, making used cars less of a bargain. If you’re financing your purchase, the savings advantage of a used car shrinks further: Interest rates for preowned vehicles are 4.84 percentage points higher, on average, than rates for new cars, according to Experian data. Ask yourself these questions as you decide whether to buy new or used.

How long are you going to keep the car? A $50,000 new car will lose more than half its original value over five years, according to Kelley Blue Book. If you plan to sell or trade in a new car quickly, you’ll take the brunt of the depreciation.

"We’re seeing such a bifurcation in the market right now that if you’re shopping below $30,000, most of your best options are going to be used," says Sean Tucker, managing editor at Kelley Blue Book. "And at that point, it just makes a lot of sense to have someone else pay the depreciation."

Has the manufacturer updated the car’s safety or tech features? Many active safety and advanced tech features are now standard and have trickled down to the used-car market. "Almost every car sold in the U.S. now has a rearview camera and smartphone integration of Android Auto and Apple CarPlay," says Joseph Yoon, market insights manager with Edmunds. "And most cars have some sort of parking alert, so you won’t hit a pillar or your garage wall."

So unless there’s been a full model redesign — or significant updates to safety and driver-assistance technology — there may not be much difference between a new car and a three- to five-year-old version of the same model.

What warranty protection comes with the purchase? New cars and certified preowned cars come with warranty coverage. Non-CPO used cars are often sold "as is," with no factory warranty remaining. Repair costs could increase the cost of ownership.

Do you need to finance your purchase? If you can pay cash, a late-model used car will typically offer greater value. If, like most car buyers, you need a loan, compare used-car interest rates and potential repair costs to understand the total cost of ownership.

Are you set on the color or trim level? If you’re unwilling to compromise on the color and trim level, you may have fewer options when looking at used cars — and less opportunity to save.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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