Brand-New Cars Under $20,000: What U.S. Shoppers Can Still Buy Today

# Brand-New Cars Under $20,000: Available Models in the US # Brand-New Cars Under $20,000: What U.S. Shoppers Can Still Buy Today Buying a brand-new car for less than $20,000 is a lot harder in the US now compared to before. However, this shouldn't discourage potential car buyers from purchasing a brand-new car. What it means to buy a brand-new car at $20,000 or below has changed. Now, dealership costs, sales tax, car registration costs, destination charges, document fees, accessory costs, and financing all need to be considered and added to a car's final price. For a vast majority of buyers, a car that is priced below $20,000 will cost more than that amount after all the associated costs are added to the price before purchase. It all boils down to the simple fact that you can't go shopping for a "20k" car. Shopping for a new car with a price that fits within your budget and the costs associated with that purchase without expecting dealership discounts or unrealistic financing is how you should approach this. A new car purchase can still make sense for someone that wants to invest in warranty coverage, routine maintenance, and avoiding the risk of an uncertain previous owner. Within a budget of $20,000, you have to be realistic about what you are getting. Generally speaking, the choices you will have are compact cars with limited features. # The $20,000 Question: MSRP is Not Your Final Price When buying brand new cars for under $20,000, buyers tend to mean one of two very distinct things and, in both cases, it is incorrect. To some people, it means a car with a Manufacturer’s Suggested Retail Price (MSRP) that is below $20,000. Meanwhile, others mean they have a total budget that is capped at $20,000. These obviously have different meanings. Now, we are taking about MSRP, which is where the manufacturer of a car sets its price. This price doesn't always include the destination charge. It also doesn't include state and local taxes, the registration, title, documentation fee, insurance, sales tax, and any other added costs. Because of this, a car that looks to be in the $20,000 MSRP can end up being much higher before it's legal to drive. The best budget tool you can have is the out-the-door price, also known as the total cost to have the car delivered to you, therefore reducing the element of surprise. This price breakdown includes the vehicle selling price, destination charge, dealer fees, accessories, taxes, and registration. This also includes every other added charge. This price tool eliminates a sneaky sales tactic of showing the vehicle sell price as a low, low price, while the thousands of other charges that come at the end of the sales process are a surprise and unavoidable to the consumer. If $20,000 is your absolute budget, in order to afford to drive this vehicle home this price may have to be substantially lower. The remaining cost relies on the sales tax, the registration, and the fees set by the dealer of choice. Buyers who fail to think of these elements of the sales process end up having to stretch the budget that was previously set, resulting in an unaffordable loan, or walking away with no deal. Affordable new vehicles have become a thing of the past, with inflation being only partly to blame for this. Automakers have shifted focus to larger and higher profit vehicles like trucks and crossovers. In the meantime, modern safety regulations, emissions solutions, infotainment systems, backup cameras, communications equipment, and increasing production costs have raised the cost floor for building a vehicle.

Small sedans and hatchbacks have also been losing market share in the U.S. Now, some buyers want their small cars to have the space, features, and technology previously found in larger, more expensive models. While these features and technology are often useful, they also make it difficult to create an inexpensive new vehicle.

Make no mistake, a basic new car is a basic new car. The question is whether it meets your basic needs. If you need a reliable car for a job, school, errands, or commuting, then buying a small, cheap, basic car may be a good financial decision. You probably don't need a premium model just because larger displays and flashy cosmetic upgrades exist. Franlex Finance may be interested in anything that increases your monthly payment.

What a Less Expensive Car Really Means

To give you an idea of what you can really expect at this price point, most manufacturers only make entry-level small sedans and hatchbacks as their least expensive options. Prices depend on the manufacturer, regional markets, and dealer inventory, so it's important to cross-check pricing through the manufacturer's websites, call local dealers, and obtain written price quotes before you consider buying cars you see posted at a low price anywhere.

Don't expect to get a luxury car if you're shopping in this price range. You should expect the following:

• Front-wheel drive and a small 4-cylinder engine.
• Not great acceleration, especially with a full passenger load.
• Cloth seats and manually adjustable drivers seats.
• Less expensive wheels and tires.
• No dual zone climate control.
• Basic safety equipment and some advanced safety features are available depending on the trim.
• Limited back seat room and cargo space compared to a crossover.
• Conventional automatic transmission or a CVT depending on the vehicle.

All of these compromises are very manageable for most drivers, and some of the vehicles may cost you less to repair and own in the long run, such as a vehicle with fewer expensiveupgrades or parts that may have more demand for replacement. That is why some people believe that, in the long run, a basic vehicle with common size tires instead of all the upgrades a dealership may have offered you at sign-to payment may be the best option.

What you are getting from a vehicle with a price tag under $20,000, is not going to get you what you want from a vehicle. If you expect to need to transport 3 adults in the back, pull a trailer, need a vehicle to handle bad back roads, or take a lot of stuff with you, this type of vehicle is a bad choice.

Don’t Be Tricked into Thinking Cheap Monthly Payments Equal Cheap Cars

The worst place to do monthly payment shopping is in the under $20,000 range. Loans get stretched out, upfront money goes up, and trade-in loans get added onto the financed amount, but this doesn’t lower the price of the vehicle.

it is very common to be paying more than the vehicle is worth for a long time after you buy it. This creates issues if the vehicle is totaled, stolen, sold early, or traded in before the loan is completely paid off. There is a lack of flexibility with this loan. A long loan term, in order for a driver to purchase a cheap vehicle, may leave the driver in the position of not being able to replace it without bringing cash to the next sale. Evaluate offers based on the total out-the-door price, annual percentage rate, and total payment over the life of the loan. Request the financing disclosure. If a loan only works because it is stretched beyond your personal comfort, the car is outside of your budget. A good down payment may lower the interest on a loan and decrease the probability of having negative equity, but buyers should be cautious of spending their emergency savings to purchase a vehicle. New-car ownership still has the costs of insurance, fuel, and maintenance and may have other unexpected costs. The safest purchase is one that leaves room in the budget with the keys in hand. Base trim does not mean that you should skip safety research. Buying the cheapest trim should never mean that you are buying the vehicle blindly. Entry level vehicles may vary drastically in safety equipment and may lack necessary features. Prior to visiting a dealer, review the equipment list for the trim and model year of interest. Look past marketing jargon. A feature that is described as “available” may only be on a higher trim or option package, or inventory that is harder to find. Is the VIN you are looking at customizable?

Rearview cameras, automatic emergency braking, lane-departure alerts, blind-spot monitors, and adaptive cruise control are features that are worth considering for many buyers, but the correct feature prioritization is dependent on the driver, and of course, the cost. Adding features can drastically increase the cost of the vehicle, and buyers should not be adding too many features to the point that they are moving up too many trim levels to get the technology that they are looking for. While some features do have a lot of value, a large jump in price can defeat the purpose of the buyer getting a vehicle that they can afford.

Making good safety decisions also includes basic safety features. A vehicle that the driver is comfortable controlling, proper seating position, and visibility along with basic headlights and tires that are properly maintained are all part of the package too. Advanced safety features help aid the driver, but attentive driving is key. Advanced features are not designed to substitute the driver's responsibility.

Dealer Add-Ons Are the Biggest Threat to an Affordable Deal

Dealer-installed add-ons in brand new vehicles sold for under $20,000 are typically worse than the difference between two competing models for shoppers that prioritize brand new vehicles. Add-ons can include window etching, nitrogen-filled tires, paint protection, fabric protection, wheel locks, security systems, and appearance packages that can include bundled aftermarket accessories. These add-ons can cost hundreds or thousands of dollars in markup.

While some accessories can be good investments for a particular buyer, they should be considered individually. The main problem is that add-ons are bundled together, and some dealers present them as non-negotiable. Dealers will argue that items have been installed on the car and can not be removed. That doesn't really matter since you can always turn them down and look for a different dealer. In clear language, a dealer add-on is not a factory option. Factory installed items are listed on the window sticker, and are included in the original configuration of the vehicle. Dealer accessories are sometimes listed on a supplemental sticker, and/or mentioned in the documentation regarding the purchase of the vehicle. Ask for copies of both before you agree to anything. The best negotiating position is to be the person who is ready to walk away. If you are the only person who will take a certain vehicle, on a certain day, you don't really have a choice. The other person has a great deal of power, but you are the person who is willing to wait, and has been quoted several times. This gives you the power to negotiate the price. The best way to put your pre-test drive research to good use begins with identifying your flexible (but notimaginary) out-the-door price. You must consider the trade-in, whether you have a down payment, and whether you have financing. Pre-approved financing does NOT mean you have to take the financing from that source. But, it is a good comparison to financing offered by a dealer. Now make a short list of vehicles that fall in your price range. Follow the links to the manufacturer's websites for the base MSRP, the destination charge, the warranty, standard equipment, and lump all the information about the incentives together. Carefully read the terms of the incentives, as some require financing through a specific lender, military service, or recent graduation. Send multiple emails or texts requesting the price of an in-stock vehicle. Get to the point: Find out if the quoted number covers all mandatory dealer fees and added accessories. Do not fantasize about perfect payment scenarios. You must have a final price and financing offer prior to warm payments discussions. When you arrange for a test drive, check the everyday things, the things you will use often. Think about seat comfort, the amount of road noise, the control placement, how easy it is to park and maneuver, how easy it is to get in and out of the back seat(s) and open the trunk, connectivity, phone placement in the car, visibility, the texture of the controls, the feel of the brakes, etc. A smaller car is still a great deal, but only if it fits your body and your daily needs, passengers, and the parking spaces you will be using. Traditional wisdom is that used cars are the better financial choice. However, that is oversimplified. A good used car may also have better space, power, and equipment. There are also higher financing costs, shorter warranties, unknown maintenance history, older and worse tires and brakes, history of accidents, and a greater risk of needing immediate repairs.

A new car that costs less than $20k is a good deal for the buyer who is looking for less uncertainty and a long term ownership vehicle. The first and only owner knows the entire history of the maintenance of the vehicle. New cars are not always better, but a new car allows you to have predictable car costs for the foreseeable future which is a good deal for buyers who cannot afford a surprise repair. If you can't afford the new cars, make sure to consider a used car. If budget new cars are too cramped, too underpowered for driving, or loaded with add-ons and high interest financing, a used car may be the better option. The correct choice is NOT new versus used. The correct choice is about the costs and practicality of the different vehicles. Check out certified pre-owned, late-model used, cars, inspected by independent mechanics, and service records. When considering insurance, it may be cheaper to pay less for a car, but if it is a high-risk used car, a popular make and model, or with expensive after-market parts, insurance may cost more than you ever considered. The most important features you should be comparing vehicles for are not the fancy new features. It's the cost to own and maintain the vehicle that you should ultimately be concerned with. Before you sign any contracts, compare insurance for all of the models you are considering. Find out the fuel cost and the size of tires for replacement as they can greatly impact costs. Learn the maintenance cost, warranty service, assistance contracts, and replacement key costs. These facts will ultimately determine the cost to own the vehicle. Be particularly wary of prepaid maintenance, extended warranties, gap coverage, and all finance prepaid items. Some may be valuable in certain cases, but do not accept these items under pressure or under duress. Understand the terms and compare the cost to other similar contracts to see if they are actually necessary. Gap coverage is most important for long term loans with low down payments. It is beneficial to consider deals that include a total loss insurance payout up to the remaining loan balance. However, coverage and prices will differ, so it is best to compare the dealer's deal with quotes from the insurance company or lender instead of assuming that the deal available at the finance office is the most cost-effective.

Bottom Line: A $20,000 Budget Requires Discipline, Not Desperation

Buying a car for under $20,000 is still worth a look, but buyers need to set reasonable expectations. The era of a shopper being able to buy a fully loaded new car for less than $20,000 is over. Many buyers will end up paying more than the listed price.

The correct next step is not to overextend and buy outside your means. The best course of action is to stay disciplined with your budget. This means setting a budget without bending, looking at written quotes, licensing the car yourself, walking away from dealer add-ons, and, ultimately, walking away if the deal does not meet your needs.

A new car that fits all your driving needs may end up being less of an investment than a used car that requires constant repairs, and is overpriced to sell. The goal should not be to focus on a low advertised price. The goal should be to get the most cost-effective car that works for your budget.