A shortage in semiconductor chips led to a lower inventory of new cars over the past few years. Decreased supply and steady demand caused used car prices to spike almost 50%. Now, prices are slowly going back down again. Your best opportunity to buy a used car is likely around the corner in the coming months.
Car buying is more confusing now than ever. Though used car prices increased drastically in the first half of 2022, the second half of the year shows car prices dropping. Will these declines continue? Or is this small decline just a market trick?
We can’t predict the future, but we can tell you that prices have finally started trending downward. Keep reading to learn more about used car prices dropping and what it means for you.
Why are used car prices dropping?
To answer this question, we have to understand why used car prices went up in the first place. In 2020, the auto industry began facing the semiconductor chip shortage. This led to slowed production of new vehicles, low supply, and increased prices. Used cars became a lot more valuable with fewer new vehicles in circulation, resulting in some dealerships selling all the cars on their lots.
As such, used car prices increased roughly 46% from March 2020 to March 2022. We can see this increase in the average loan amount for both new and used vehicles.
The semiconductor chip shortages persist today but show slow signs of recovery. Supply is beginning to catch up with consumer demand again, and used cars are consequentially declining in value. Trends have shown a steady decline in used vehicle prices since this summer. CarGurus estimates that car prices are slowly dropping, with some car brands’ average transaction price decreasing 4% over the last 90 days.
The used car market correction
Economists define a market correction as a sustained 10% to 20% decline in the price of an asset following a recent peak. The used car market hasn’t seen this level of decline yet, but experts expect it to in the coming months.
The chip shortage is predicted to persist through 2023. Once the auto industry recovers, used car prices will likely drop even more. Yes, prices are dropping now, but they likely have a long way to go until they reach a stable bottom.
What does this mean for you?
If you want to buy a used car and have the ability to hold out, it might be a good idea to wait. If you’re thinking of selling your car, however, it might be a good time to do so.
Either way, the current takeaway is not that you should rush to a used car dealer. Prices aren’t declining at a rate fast enough to warrant urgent action. That being said, keep your eye on auto industry economic trends until 2023.
What to consider when buying a used car
Regardless of the market trends, sometimes you just need a car. If you’re looking to buy a used car, consider the following factors before making your decision.
Auto loan interest rates
Used car prices may be decreasing, but auto loan interest rates are increasing. At this point, interest rates could negate the benefits of a good deal on a car. The Federal Reserve dictates benchmark interest rates. We’ve already seen the Fed increase rates four times in 2022 to tame inflation.
As a result, auto loans are more expensive, especially for used cars. Average used car loan interest rates are nearing 9%. Keep this in mind when planning a car purchase. Your goal should be getting the lowest rates with the best terms. If you plan to finance a used car with a loan, shop around lenders to see where you can get the best rates.
Budgeting for a car purchase
Before walking into a car dealership, you should have a good idea of what you can afford. Buying a car is a big financial decision that people often underrate. Factor in the purchase price and the total cost of owning a car before signing all of the paperwork.
Shop around different dealerships and be flexible with your criteria, but don’t compromise on your budget. Be ready to purchase right away when you find the right car at the right price. If you need some additional guidance on effectively budgeting for a used car or navigating the dealership, check out SuperMoney’s guide on how to get the best deal on a used car.
Vehicle trade-in or private sale
You can also buy a used car in a more “traditional” way by trading in your vehicle or buying it from a private seller. Both of these options are great ways to save money and avoid some of the hassles of buying a new car at a dealership.
Because used cars hold more value these days, you may be able to put the equity of your current car towards a significant portion of the price of your new car. Inquire with your local used car dealers about trade-in deals.
New or used vehicle
Used cars are always cheaper than new cars, right? Actually, no. Nowadays it’s common for a new car to be less expensive than a used car. You might be surprised to find that you can get the newest version of a car for a lower price than its used counterpart. Of course, this depends on the models you’re comparing.
Don’t set your heart on a used car or new car. Take your time shopping around and don’t count out a new car. It’s worth checking to see if new vehicles outcompete the used cars you’ve had your eye on.
Best used car prices right now
Car shoppers want to know where they can get the best deal. Of course, this often depends on the make and model of the car they’re looking for. If you’re on the hunt in the used vehicle market, check out these current average prices by car brand.
According to CarGurus, the lowest used car prices in September 2022 include the following car makes:
What about new car prices?
As you may have guessed, new car prices have been impacted by the volatile economy and chip crisis as well. Average transaction prices for new cars are at all-time highs and don’t show promising signs of dropping.
Inflation, shortages, supply chain issues, the popularity of luxury cars, and interest rates are among the causes of these high prices. Used cars could start looking a lot more appealing in 2023.
What’s good mileage for a used car?
In general, lower mileage is better. However, it’s important to assess all other aspects of the car to make sure it’s in good condition and has a clean history. The 100,000-mile mark is a common threshold for used car value. However, modern cars can drive perfectly long past that benchmark.
Is it smart to buy an old used car?
The best used car to buy is up to the preference of the buyer. Old cars can be great purchases if their former owners took good care of them. As long as a car is safe and in good condition, it doesn’t matter how old it is.
Keep in mind potential repair costs and depreciation associated with older cars to make sure they fit your criteria. For instance, even if you get a great deal on an older car, make sure you know why. Depending on the model, you may have to get replacement parts shipped from overseas, which could bite into the savings you kept from a great deal.
Which car brand is best to buy secondhand?
This comes down to preference, but some reputable brands are known to be great secondhand cars. Good car brands to buy secondhand include Mazda, Nissan, Toyota, Ford, and Subaru.
What is the average value of a used car?
According to CarGurus, the average value of a used car is approximately $30,650 as of September 2022. That being said, the market is difficult to predict and car prices are unstable, meaning this number could change daily, weekly, or monthly.
What car will last the longest?
Toyota, Honda, and Chevrolet are car brands known to last a long time. However, most cars have long-lasting potential if you take proper care of them.
What is the best time of the month to buy a used car?
The end of the month is known as the best time to buy a used car. You’re more likely to get a good deal as dealerships try to maximize their monthly sales.
- A shortage of new cars due to a semiconductor chip crisis led to higher prices for used cars in early 2022. As the auto industry slowly begins to recover from the chip shortage, you’ll likely see used car prices drop. However, it could take more than a year for the market to correct.
- There doesn’t seem to be any rush right now, whether buying or selling used vehicles. It’s best to keep your eye on used car prices and chip shortage news.
- According to CarGurus, the top three cheapest used car makes are currently Saturn, Mercury, and Scion.
- When looking for a new or used car, beware of rising interest rates. They could make your auto loan much more expensive and offset the lower prices. Consider trading your car in or buying privately to get the best deal.
View Article Sources
- Used Car Price Trends — CarGurus
- Measuring Price Change in the CPI: Used Cars and Trucks — Bureau of Labor Statistics
- Buying a Used Car From a Dealer — Federal Trade Commission
- What’s The Total Cost of Owning a Car — SuperMoney
- How to Finance a Used Car — SuperMoney
- How To Get The Best Deal On A Used Car — The Super Guide — SuperMoney
- Used Car Loan Rates: Finding Lowest Rate With Best Terms — SuperMoney
- How to Buy a Used Car from a Private Seller: 5-point Checklist — SuperMoney
- How To Legally Avoid Paying Sales Tax on a Used Car — SuperMoney
- Can You Lease a Used Car? — SuperMoney
- Should I Buy a New or Used Car? — SuperMoney
- Car Shopping: Is Buying New Really Worth It? — SuperMoney
- International Student Car Loans: What You Need to Know — SuperMoney
- Best Auto Loans for Buying a Used Car in 2022 — SuperMoney
- 2020 Auto Loan Industry Study — SuperMoney
- OneMain Financial Car Purchase Loans — SuperMoney