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There is still some way to go before used car prices come back down to earth.
While prices in December were 8.8% lower than a year earlier, consumers continue to pay more for used cars than if normal depreciation expectations were in play, according to autoshop app CoPilot, which tracks these price premiums in a monthly report.
Last month, the average price for a used car was $30,899, according to CoPilot. That amount is $7,146 (or 30%) more than if the predicted depreciation projections had materialized. For the consumer, however, the price is moving in the right direction: six months ago according to the app, car buyers paid about $10,000 more than “normal.”
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“With the average price premium still at 30%, used car prices in America have a long way to go before returning to normal,” the CoPilot report notes.
Demand in the used car market skyrocketed during the pandemic as supply chain issues hampered automakers’ ability to produce new vehicles. That situation is now easing, with modest improvements in dealer inventory as rising interest rates put pressure on affordability. The median price of a new car is $46,382, according to an estimate by JD Power and LMC Automotive.
The average interest on a used car loan is 10.25%
Still, switching to a used car generally does not yield a better rate in financing. According to Edmunds, the average interest rate on a used car loan was 10.25% in December, compared to 6.68% for a new car finance. A year earlier that was 7.4% and 4.1% respectively.
Plus, the rate you pay is based in part on your credit score — the higher that three-digit number, the lower the rate you could qualify for.
And, of course, the price depends on the specifics of the car itself.
Near-new cars are $9,606 above ‘normal’
By age, nearly new vehicles (1 to 3 years old) have an average price of $40,273, which is $9,606, or 31% more than the expected normal amount of $30,667, according to the CoPilot index.
In the 4 to 7 year old range, the average price is $29,400, an amount that is $6,731, or 30%, more than the “regular” price of $22,669. Vehicles 8 to 13 years old have an average price of $18,018, or $4,621 more (about 35%) than the previously predicted $13,397.
Used cars with the biggest price drops
Some car prices have fallen more than others. The chart below shows the 10 used cars whose prices have fallen the most in two months (September to December), according to iSeeCars.
Meanwhile, the pressure on new car production over the last few years could be a headwind for the used car market going forward.
“Stock shortages of new cars in 2021 and 2022 will result in noticeably fewer [of those] Model year vehicles on the road that will become used cars in the future,” said Joseph Yoon, consumer insights analyst at Edmunds.
In addition, Yoon said, many 1- to 3-year-old cars for sale at dealerships are leased cars that have been returned, and the number of customers leasing their cars has fallen from 29% two years earlier to 16% in December . .
“Rental fleets also suffered dramatically from the shortage of new vehicles, further reducing the reliable flow of used vehicles of the latest model for consumers to choose from,” added Yoon.