When will the price of used cars decrease?

Wapcar automotive news – There’s nothing new for those buying used cars in 2022: used car prices have hit record highs. According to the U.S. Bureau of Labor Statistics, the Used Car Index, which tracks used car prices, grew 42% from December 2019 to October 2022, the amount that buyers will pay. At this point, the buyer demonstrates the willingness and ability to pay an exorbitant price. Perhaps it is similar to the condition of used car for sale Malaysia, or that in other countries.

Used car prices pull from the first floor to the tenth floor like an elevator. They have the ability to descend like an escalator and are very shallow at that point. While you won’t feel it as often as a trip to the grocery store or a gas pump, the cost of a car is a big factor in the country’s inflation problem. According to David Paris,  director of market research at J.D. Energy Assessment Service. There is a chance for some reduction in bargain prices later in the year as new inventory grows, but there has been no significant reduction from the high bargain prices so far. 

If you’re looking for a used car, you can’t help but wonder when the price will drop. Should you jump into a used car right now, despite the high price tag? In this guide, we’ll look at the causes of price increases, when and how much they will drop, and how to still get a good used car deal on today’s market. 

How did we get here? 

Prices in the used car market are very sensitive to changes in supply and demand. Unfortunately for buyers,  demand has increased and supply has declined since America began to emerge from the brief COVID-19-induced recession. 

Prices and Interest Rates

It is estimated that a used car may cost its owner much more money than before though the used car prices decrease in the market. The reason behind it is the interest rates, which are climbing at a fast speed after they have stayed at the low point for a period. In addition, the background of it is that the Federal Reserve made an effort to control inflation. 

If it is a little difficult for you to understand, we can take an example to make it more clear: assuming that you have submitted a car loan of 20,000 dollars for a span of 60 months at 4%. And you can expect to pay a sum of interest of 2,100 dollars over the term of the loan. Now, the whole money you spend on a car is the car loan plus the interest, 22,100 dollars. If you take a loan at 6%, you will pay 3,199 dollars in interest or 23.199 dollars. It is approximately 1,000 dollars more than the 4% loan.  

According to J.D. Power Valuation Service, any discounts we see in the used car market will not be spread across all vehicle segments.

Will the price of some cars drop more than others?

If they fast forward to 2024, J.D. Power expects some of the biggest drops to occur in today’s hottest overheated segments, Paris said. These include small, compact and medium passenger cars.

High demand 

The surge in demand came from a variety of places, including new car buyers from the new car market and those cashing in on cash after receiving pandemic aid checks and postponing travel as well as other purchases in a few years. Some used car buyers are delaying their car purchases due to job uncertainty, but now they have to buy a car to replace a car that has reached the end of its life.  

Incredibly low-interest rates on auto loans, which allow buyers to pay more for a vehicle while still being in control of their car payments, have fueled the fire of demand. demand has exploded.  

Low Power 

The used car supply is more complex and starts with the new auto industry. During the coronavirus pandemic, new car production has come to a halt and factories have canceled parts orders, projecting prolonged disruptions. Instead, demand for new cars has exploded, leaving automakers unable to keep up with demand for new vehicles. Just walk into an auto dealership and you can count every new car coming in at a glance. This has pushed new car prices into the stratosphere, with most buyers paying list price or more – if they can find a car.  

This has led to many new car buyers looking to buy used cars, which in turn drives up car prices. 

But that’s not the only problem. With fewer new car sales, the transactional supply for used car lots has dwindled. Rental car companies, facing massive shortages, are buying used cars instead of flooding used markets with second-hand rentals. 

Since the number of rental cars is much lower than the market value, many leased customers buy their cars instead of returning them to dealers. Before the pandemic, more than three-quarters of cars leased by General Motors and Ford were returned to dealers, according to a report by auto industry analysts KPMG. By mid-2021, that number drops to one-third for Ford and one-tenth for GM.

Will they drop, or is this the new standard? Used car prices are likely to drop at some point, as the market is forced to keep them so high that it’s unlikely to last indefinitely. When and how much is a question that has as many answers as there are experts? 

In their recent KPMG report, they illustrated four scenarios for the market to return to more normal conditions. They have different time periods, from the fourth quarter of this year to the last quarter of 2023. At least one of KPMG’s scenarios (continued low supply coupled with the high demand) is likely to see used car prices rise further before falling. 

So yes, you can expect prices to drop, but expect a slow drop, unlike the rapid rise that the used car market has seen. 

Further disturbances could, of course,  accelerate the declines or bring them to a  halt. If interest rates rise rapidly along with automakers returning to producing new cars to their old levels, prices could fall rapidly. On the other hand, if the shortage persists, it could be a long time before prices drop significantly. Further plant closures due to spare parts shortages or the continuation of the pandemic could exacerbate shortages in new car inventories, which are then reflected in the used vehicle market. According to Paris, J.D. Power is starting to notice some initial production improvements, which will continue through the second half of the year. However, despite the improvement in new vehicle production, retail inventories in the sector remain extremely scarce, which will keep the prices of new and used cars high throughout 2022. 

They will how much reduction? While used car prices are likely to fall, there is no consensus on how much or how quickly. The new floor will probably be a long way off, even if prices begin to fall rapidly. Buyers who remain on the sidelines will re-enter the market and their demand will slow any decline in price. 

If you still desire a price as affordable as that of the days before the outbreak of the pandemic, you may feel a bit disappointed. Even without market disruptions, the used car market is likely to grow in price naturally, just as new car prices have been rising slowly for decades. The floor price of the used car market will naturally be slightly higher in 2023 than in 2019.

Buy A Used Car, Is It A Good Choice?

If you expected a straight answer to this question, you’re out of luck. The answer depends on your individual situation. If you need a car because your current car has reached the end of the road, then, by all means, you should buy one. 

If you just want a car but have to wait for the price to drop, you should consider this option. This is a time when patients can pay off very well. 

A key point to remember is that although the car you buy will be more expensive, you may end up getting more money than you expect when you sell or trade your current vehicle. To maximize the amount you get, you should consider instant cash offers where you have local dealers competing to buy your car. 

It’s really a case-by-case question and answer, says Paris. If you NEED a used car, this is always a good time to buy it. He added that interest rates, although rising, remained at a favorable level and equity (exchange value) remained as high as ever. This helps offset the higher costs associated with buying a new or used car today.

How to get a good used car price right now? 

Even if the market is disrupted, the fundamentals of buying a used car still apply. First, you want to find a vehicle that fits your needs and budget, has a clean vehicle history report, and passes an independent mechanic’s inspection. If it’s not a good car that can provide years of trouble-free service, it’s in no way a good deal in the long run. Our used car ratings and reviews will help you choose the right vehicle for you. 

Regardless of the car buying environment, it’s important to buy with a plan and know your budget, says Melinda Zabritski,  senior director of automotive finance solutions at Experian. 

For example, make sure your credit is in the best shape possible before you look to buy a car, to make sure you qualify for the best terms and interest rates. 

You can minimize the added cost of your car loan by researching the best rates and setting up a pre-approved offer before you go to the dealership. While the bookie can make financial arrangements for you, they will have little incentive to give you a good deal unless they have a beat offer. 

Historically, credit unions have typically had some of the lowest interest rates, and in today’s market they’re seeing increased lending activity in the auto sector, Zabritski said. 

You should also enlarge your span of search. That is, you can include a broader area. Driving from one lot to another is not a good use of time when you can easily narrow your search by searching online to see what is available in your area. 

It’s important to be careful with add-ons you don’t need. There are many stories of sellers telling buyers that they can only get a good deal if they buy specific add-ons or accept a car loan that the dealer arranges. These are just ways for the seller to increase the price of the car.

Advantages of the warranty for a new car

With some used car prices below the list price of new cars, you may want to rethink the idea of ​​buying a used car instead of a new one. Unless you’re buying a certified used car, you won’t be covered by the warranty on the old car you bought when you bought a new car. Even if your budget allows you to buy too much of a used car, it may not be the best decision in the long run. 

What does this mean for my car loan? The consequences of buying an overpriced used car can lead to many problems from the day you drive it home. Because of the higher prices, buyers are taking out increasingly large used car loans and borrowing for longer terms. 

According to Experian, the average used car loan amount in 2020 is $20,690. The total number was 27,945 dollars in the first quarter of 2022. Over the same period, the average loan term increased from 64.54 to 67.65 months. Some of this increase can be attributed to more buyers buying more expensive SUVs and crossovers, but higher used car prices across the board are also a big reason. 

This is where larger and longer loans can become a problem. When the value of your car falls faster than the balance owed, due to the falling market value and natural depreciation, you can easily find yourself upside down with your loan. This can put you in a bind if the car is stolen or declared completely lost in an accident, and it leaves you with no capital to spend on your next car purchase.

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