Used Car Prices

When I consider getting rid of my van, I immediately turn to finding a replacement in the used car market. Having a truck around the house for hauling and whatnot is nice. Unfortunately, the cost of used cars gives me sticker shock, and instead of getting rid of my old truck, I spend hundreds of dollars to repair it. What should I expect in the future about the used car market?

Are Used Car Prices Dropping?

It sounds like wishful thinking when you consider it, but some signs suggest that used car prices might hit the ceiling soon and start going down, but the evidence suggests that prices will stay up for a while. Any lowering of prices is just the ups and downs typical of any calendar year.

Why are Used Car Prices So High?

For several reasons. Inflation is one. The cost of credit has gotten high. It’s driving people who would otherwise buy a new car into a used car, so the demand for used vehicles is going up, way up! The range of interest rates you’ll pay varies from 5% to 14% for a new car. Unfortunately, the cost of financing an older car is even higher.

The used car price hikes started with the supply and demand for new cars during the Pandemic when a shortage of workers radically slowed down the supply chain of new vehicles and parts. The used car lot seemed the logical place to find a car before the price of used vehicles increased.

In addition, the price of used cars also has to do with affordability factors:

• The cost of cars, in general, has gotten high.
• The cost of a new EV is high, so people who plan to buy a new EV have been scared off, and those customers are considering an older EV. They’re discovering a used EV’s ownership costs less than a gas-powered car.

Predictions

The used car market has inspired a lot of predictions about the direction the market will go in. Let’s take a look. First, consider the Biden Administration’s success in decreasing inflation. When the interest rate finally reflects the lowered inflation numbers, used car prices may fall. So, look to 2024.

According to JP Morgan/Chase, that’s already happening in 2023; as the months pass, used car prices keep steadily lowering, even if it’s not a steep drop.

Supply lines disrupted during COVID-19 are under “repair” when the transportation level looks like the pre-pandemic level. This will also push the price down. But it’s slow going.

Calendar: When are Prices the Lowest?

If the overall price of used cars isn’t dropping this year, when is it an excellent time to buy during the calendar year of 2023? Experts say It’s not a good time to buy at Christmas. According to USA Today, prices go up by as much as six percent. Not good either in May or June when everybody is out and about buying.

In winter, the prices come down because people aren’t buying, so the demand is slack. So you should be able to find a car during the dead of winter, that’s reasonably priced. Post-holiday prices can be an excellent time to buy; everything else is on sale, but it’s also an apparent time to buy, that is, in the week following Christmas. Put it off until January.

New Car Depreciation

Everybody believes new cars depreciate significantly the minute you drive them off the lot. While that depreciation was pegged at 30 percent for years, it’s currently about 20 percent of the price of today’s cars. After owning the car for four years, it is worth approximately half of what you paid.

So, how much of the attraction to used cars is due to alienation from the depreciation? Consumers do not like depreciation, which is driving demand for used vehicles, and the price of used cars increases. 

What Kind of Financing For a Used Car?

That’s a real question, especially if you buy it off the lot. Used cars from dealerships have the advantage of being regulated by the government, namely the Lemon law, so you’ll have a fair idea of what you’re buying if you go to a dealer. Still, financing a used car is considered riskier than financing a new vehicle, and the higher interest rate reflects that. Still, what kind of financing would you take out for a used car.

• Pay cash for it.
• Your Father in Law
• Your bank
• Dealer Financed

Any financial institution will charge you a high rate for a used car, up to 21%. The more money you can pay out of pocket for a vehicle, the better it will go for your wallet. The difference between financing by your bank and dealership financing can be real, so check it out.

You could save money to buy your new, used vehicle, saving you all that money paid in interest. If you have a relative who will borrow you money, that usually comes with few or no fees.

Tips for Buying Used Vehicles

Here’s a tip I like when buying anything in the hefty price tag arena, from televisions or computers to cars. Here’s how it works with cars. Price out the vehicle you want, being aware of the other makes and models, and trim levels in the same price range.

Take that amount of money and approach the used market. Look at one-year-old cars. By investing in a one-year-old vehicle, you should be able to move up to the next model category or at least a couple of trim levels higher than the car you decided on.

The most severe depreciation happens in the first year, so go for that one-year-old car, confident you won’t take a significant depreciation hit if you buy it. While you intend to buy a Toyota Corolla, you’ll end up with a Toyota Camry. Some think these two cars are a world apart in ride quality. The money you’ll have available for a one-year-old car will allow you to leapfrog to the next higher model or get the same model with significantly better extras.

Unless I had a lot of expendable income, I would buy used anyway, so that rule is exciting.

Here’s a second tip. When buying used, consider the mileage. Sure, you can find some fleet vehicle that’s only two years old but has high mileage and get it for a song, but consider a car with only 80,000 to 100,000 miles but is four or five years old. A car with that kind of mileage has many miles left, maybe as high as 200,000, and it will cost half the price of a new car. Now, that might be your best deal.

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