Used Car Prices Fall in 2022, but Monthly Payments Rise
Used car prices are finally coming down, but that doesn’t necessarily mean it’s a good time to buy.
The average price of a used vehicle has fallen for four straight months, dropping below $29,300 in July, according to automotive research firm Edmunds.
But don’t pop the champagne in celebration just yet.
“We are still a long way from what anyone who has bought a used car in the past will be able to identify with,” says Ivan Drury, chief knowledge officer at Edmunds.
If prices are heading in the right direction, they remain historically very high. The highest average price for used vehicles ever at Edmunds was $29,969, reached in December 2021. Prices have fallen fairly steadily since then, but not by much.
Compared to July 2021, used car prices are up 7.4%, or about $2,000 more. In February 2020, before the pandemic, used cars sold for around $20,700 on average.
The recent price drop isn’t noticeable enough to make people rush to a dealership. But the trend gives you “the gift of extra time,” says Drury. In other words, you probably won’t have to make rash buying decisions for fear of a price spike like the past few months.
On the other hand, cheaper used car prices could have the opposite effect for those looking to swap their vehicle to bring down the price of a new one.
“They will likely start to see depreciation diminish the value of their vehicle, which could make someone want to line up their next purchase sooner. [rather than] later,” says Drury.
In July, the average trade-in value for a used vehicle was around $23,500 – an all-time high, but down 1.6% from the previous month.
In short, the used car market is still out of whack, and you might even come across some used car models that are priced higher than the brand new version.
Car payments on the rise
Another reason you might want to keep the champagne corked? Interest rates on car loans are rising – and higher rates can negate the benefit of a cheaper purchase price.
“Affordability has deteriorated as we have seen large increases in interest rates, particularly in recent months,” Cox Automotive chief economist Jonathan Smoke said in a recent report. automotive market report.
In July, interest rates for used car loans hit 8.8%, according to Edmunds, bringing the typical monthly payment to $564, a record streak. Compared to July of last year, when average monthly payments were $502, with an APR of 7.5%. (For new cars, whose average prices now exceed $47,000, many Americans are paying $1,000 a month or more.)
Several factors go into the rate of a car loan, but it is broadly based on the benchmark rate set by the Federal Reserve. The Fed has already hiked rates four times this year in an effort to keep inflation under control, and the central bank has signaled it plans to do so again in September. As a result, interest rates on auto loans have jumped across the board in 2022.
Even when your auto loan rate is only slightly higher at the time of purchase, it can lead to a noticeable increase in your monthly payment. And when it comes to affordability, monthly payments are arguably more important than the purchase price itself.
Case in point: In December 2021, when used vehicle prices hit an all-time high, the typical monthly payment was actually $23 cheaper than it is now.
More money :
4 Ways The Cut Inflation Act Will Save You Money
Best car insurance companies of 2022
How to save money on gas