If you’re looking for used cars right now, you’ve probably noticed that prices have dropped quite a bit. Is now the right time to buy a used car?
In fact, they’ve dropped by 5.5% over the last 12 months ending in the third quarter. Most of the supply chain problems have faded, but prices are still high compared to what they were in 2019. The new issue cropping up is high-interest rates on auto loans.
Used Car Prices Down From Absurd Levels
The prices for used cars have gone down from absurd, but they still remain extremely high compared to 2019. The average transaction for a used car right now is roughly $8,000 more than it was five years ago. In the last 12 months, the prices have gone down by about 5.5%, which translates to almost $2,000.
Despite the drop, used car prices are still frustratingly high, but inventory is slowly going up and the market seems slightly less turbulent than before. Prices for used cars surged in 2021 after supply chain issues disrupted the production of new vehicles. This led to shortages and inflated prices for used cars.
Some car owners found that their cars had actually appreciated from what they originally paid. Some used cars were even selling for more money than their new equivalents. These striking trends have mostly ended in the last year or so.
Price Gap Between New and Used Widens
One positive trend is that the gap between used cars and new cars has widened again. The average price for used cars that are three years old is about $13,686 below the new models right now. This is up from the previous gap of only $8,950 in 2022. Despite the price relief for used cars, the same can’t be said for loans.
Interest rates on auto loans have hit their highest levels since 2007. This is mostly due to the Federal Reserve’s war on inflation through hiking interest rates. The average interest rate on a used car loan is 11.6%, which is up from 11.1% in July.
The other place where owning a car has become more expensive is insurance. Premiums have soared across the board as insurance companies pass the buck on higher repair costs and higher medical costs. Many car owners are seeing double-digit increases in their insurance rates.
Shocking Delayed Reactions
Both the large interest rate increases and insurance premium increases are shocking delayed reactions to the hot inflation. The main reason that insurance premiums have been slow to rise is that the companies have to jump through various hoops to get increases approved by state regulators.
So even though price increases are going down for used cars and other items, insurance is going up. The worst part is that the recent rate hikes might only be the beginning as there might be even larger increases down the road. For example, Allstate applied to raise rates as high as 35% in three states and threatened to pull policies if the hikes weren’t approved.
Inflation isn’t the only thing driving up costs. Vehicles have become more difficult to repair for various reasons, including more complicated modern cars. Those with older used cars are still paying the price despite not contributing to the problem.
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