It’s a summer 2021 fact: Demand for both new and used cars right now is hot—and getting hotter.

New vehicle sales in May were on pace to reach the highest level ever recorded (nearly 1.4 million sold) in that month, according to a joint forecast from J.D. Power and LMC Automotive. And, although the pandemic kept many people close to home for much of last year, Experian notes consumer auto loans still grew to a record high of  $1.37 trillion in 2020.

That said, new-car dealer inventory remains pinched as consumer demand rebounds post-pandemic, but manufacturer production and materials challenges persist. This situation has simultaneously pumped up the prices for used cars, which rose 29% in the first half of June 2021 alone, according to the Manheim Used Vehicle Value Index.

Taken together, these factors make it even more important to be an informed car-buying consumer in today’s climate. If you're one of the many people in the market for a new ride right now, here are four things to consider first.

1. What type of car do you really need?

In many ways, this choice often comes down to the classic wants vs. needs comparison. Are you "revenge spending" by buying something you think you deserve, but that’s way out of your price range? Or are you on the hunt for a more reliable and affordable way to get to your job and drop off the kids at the pool? As you evaluate new or used, make and model, answering these questions can help narrow your choices:

How much do you drive? Have a daily commute or need to shuttle a big family around town? If your mileage tends to be high, a new or used crossover SUV with fewer miles on it and high reliability ratings may make sense. On the other hand, if you use a car only for occasional trips and convenience driving, opting for a certified pre-owned sedan might be a better value.

Do you have some realistic options in mind? The good news is that it’s easy to do some initial car research—without kicking the tires. Plenty of automotive websites, such as consumer shopping site Edmunds and vehicle valuation firm Kelley Blue Book, let you browse and compare new and used models, get a sense of current market price points and read reviews. You should also check out the Insurance Institute for Highway Safety’s annual  Top Safety Picks, as well as the annual make and model rankings by J.D. Power.

2. When’s the best time to buy a car?

Naturally, the best time to buy is when dealers are most motivated to sell. From seasonal incentives to end-of-model-year deals, here are three times to target for the ideal buying opportunity:

Holidays. You’ve no doubt seen more car ads during popular three-day holiday weekends. Memorial Day, Independence Day and Labor Day are often the top trio of times when both manufacturer- and dealer-sponsored incentives combine, adding up to attractive discounts.

Late summer. When next year’s models start rolling in, dealers try to clear last year’s vehicles off the lots. What’s more, as new-car inventory ramps up, the number of used cars also tends to increase—and pricing gets more competitive.

End of each month and year. Dealers aim to meet sales quotas at the end of the month. And car buyers may find maximum savings between Christmas and New Year’s Day, as manufacturers sweeten deals in a final sales push.

3. How much car can you afford?

While there’s no exact formula to determine affordability, a good starting point is making sure car ownership—and all the related costs that come with it—fits easily into the household budget. Here are a few things to know:

Consider some guidelines. To set a reasonable budget when planning a car purchase,  general guidance is that a monthly car payment shouldn’t exceed 10% to 15% of monthly income. As a gauge, Edmunds notes the average down payment for a new vehicle today is $4,734, while the average amount financed is $35,373.

Estimate the total cost. Knowing the real cost of owning a new car makes it easier to buy smart. Of course, the sticker price isn’t the only cost you’ll incur—you’ll have to factor in insurance, maintenance and fuel as well. Check affordability by calculating all the costs of car ownership by make and model with Edmunds’ True Cost to Own tool.

Check the value of a trade-in. With used-car values high right now, you may get top-dollar for a trade-in—making your car purchase more affordable. Check your car’s value at the National Automobile Dealers Association's (NADA) Guides, Edmunds and Kelley Blue Book. Tip: Wait to discuss your trade-in until after negotiating the best sales price for the car you want (so that the dealer doesn’t adjust the price to make up for a generous trade).

4. How does a car loan work?

Buying a car often means taking out a car loan. If you’re financing the purchase, you have two options: direct lending (from a credit union, bank, or other financial institution) or dealership financing (which typically uses an outside finance company to service a loan and collect payments). Here’s what to know:

Understand your loan. When you apply and are approved for a car loan, you get the funds in a lump sum, then pay it back over time with interest. What affects your monthly payment and the total amount you’ll end up paying on the loan?

• Amount of the loan. If you make a down payment or are trading in a car, the amount you borrow will be less.
• Annual percentage rate (APR). This is the interest rate you’ll be offered.
• Length of the loan. Car loan terms typically range from 24 to 72 months.

It’s important to understand the connection between the loan term and the interest rate. A longer loan term may lower your monthly payment, but it also means you’ll pay more in interest.

Why it pays to get pre-approved. Before heading to the dealership, it’s wise to get pre-approved for a car loan. Pre-approval does three valuable things:

• It informs you of how much you’re able to borrow and the interest rate you’ll be offered based on your finances.
• It locks in your financing ahead of time, boosting your negotiating power.
• And it also gives you an idea of the price range you can afford, so you can focus on getting the right car at the right price.

Now is a great time to explore  special summer auto loan rates from Spectrum CU. Through July 9, the lowest rates of the season go as low as 2.29% APR for new vehicles and 2.64% APR for used cars. Plus, flexible terms and pre-approval can make your car shopping easier.

Driving away happy

No matter what’s driving the car market at any given time, you should make a deal when the time is right for you. By taking these four decision points into account, you’ll know you’ve done the advance work necessary to purchase a car on your terms.