Buying a used car comes with many benefits, including slower vehicle depreciation, lower insurance costs, and a lower upfront price. The current state of the new car market reinforces the latter point – new vehicles hit record highs in late summer – making now a good time to consider buying a used vehicle.
Current state of the used car market
The summer ended with high prices, with the average used car selling for $28,219 in July and $28,061 in August, according to Kelley Blue Book. But used vehicles are still significantly cheaper than what’s available on new car dealer lots. Since the start of the pandemic, the car market has drastically deviated from normality and has returned to normalcy without much success.
But it’s not all bad news. While we’re not close to 2021 levels of used pricing and availability, we’re in a good place to buy used, encourages Chris Frey, Cox Automotive’s senior manager for economic and industry insights.
Unfortunately, the costs of financing, owning and operating vehicles are still record high prices. Rate increases by the Federal Reserve make the cost of financing your vehicle more expensive and gas prices fluctuate as well. But financing a used car is still less than for a new car at $515 per month versus $667 in the second quarter of 2022, according to Experian. So by choosing to finance a cheaper, used car, you can save money on your monthly payment.
Used car prices are falling, but only slightly
According to Henry Hoenig, a data journalist for Jerry, prices for used products are generally falling, but not by much. The Jerry team reviewed the best-selling vehicles in 2022 and compared them to 2021 lightly used models and found that “as of August, only seven out of 10 vehicles were worth more than the sticker price on used models.” This means that used car prices are still higher than in the past, but in line with current market volatility.
Available stock of used vehicles also remains much higher than new as dealers are still catching up on supply chain issues. So while the prices may be higher than in the past, the availability of used cars is higher than brand new cars. Used vehicle inventory is up 10 percent from this time last year, according to Cox Automotive’s third-quarter industry insights, a positive sign for the year ahead.
“Prices remain high because there are still not enough vehicles,” Hoenig says. “It’s important to remember that this isn’t like some of the other COVID-related shortages we’ve experienced.” While manufacturers of other everyday products were able to pick it up relatively quickly, cars are more difficult to produce.
It’s important to remember that the used car market is made up of drivers who lose their vehicles, so if there aren’t that many drivers buying new ones, there can be a knock-on effect on the availability of used cars. These factors combined can make you face more competition and slightly higher used car prices, but that doesn’t make buying a used car a bad option.
Should I buy a used car?
The question of buying a used car comes down to need. There is no perfect time to buy a car, especially with the many macro-environmental effects driving up costs. Because while experts predict that the stock of new vehicles should return to normal by the spring of 2023, most drivers don’t have the luxury of waiting for prices to drop.
If you are looking for a vehicle, buying used over new can save you money. The combined factors of high demand for new vehicles and low inventory with interest rates above usual levels make car costs more expensive anyway, but buying used is significantly cheaper.
Top 5 Questions to Ask When Buying a Used Car
While buying second-hand comes with a lower out-of-the-door price, it can come with the added anxiety associated with an unknown vehicle’s past. To ease these feelings, ask the right questions to understand the history of your potential new set of wheels.
1. What is the vehicle ownership history?
A vehicle with many owners isn’t always bad news, but it could mean that the car had major problems that drivers were trying to avoid or were unable to fix. Ask the dealer how many owners the vehicle had, along with the time each driver had it. Many owners in a short time are cause for concern.
Bank rate tip
Consider purchasing a certified pre-owned vehicle. These vehicles must meet additional requirements set by the manufacturer and warranty against any vehicle defects.
2. Has the car been in an accident?
While you can easily check a vehicle’s accident history on sites like Carfax or AutoCheck, it’s best to ask the dealer beforehand. Even if it is a minor accident, it is important to know how the damage was handled and whether you will have to deal with any consequences during the possession.
3. Can I view the maintenance data?
Most authorized car dealers have records of vehicle maintenance, but asking directly can be a good way to gauge vehicle care. You should avoid buying a vehicle that has not undergone regular maintenance, as this can increase costs in the long run.
4. Is there a clear vehicle title?
A clear vehicle title indicates that the car has no remaining disputes regarding its ownership, confirming that the vehicle has no restrictions preventing its sale. If the seller can’t present a clear vehicle title, take this as a red flag and walk away from the deal.
5. Can I take the car for a test drive?
It is vital to get a feel for the vehicle before signing on the dotted line, especially if it is a used car. During the test drive, take your time and try to get an idea of the driving behavior and condition of the car. This is also a great opportunity to talk in a less intense environment and ask the seller questions about the vehicle.
Buying used is a great way to get behind the wheel of a fairly new vehicle and still save money. And while yes, today’s prices may be higher, buying second-hand is still cheaper than a brand new option. The key to getting the best used car comes down to asking the right questions and shopping around for the best financing deal.