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There is still a long way to go before used car prices fall back down to earth.
While December prices were down 8.8% year over year, consumers continue to pay more for used cars than if typical depreciation expectations were in play, according to car buying app CoPilot, which tracks those price premiums in a monthly report.
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Last month, the median price for a used car was $30,899, according to CoPilot. This amount is $7,146 (or 30%) more than if the projected depreciation projections had materialized. However, the price goes in the right direction for consumers: half a year ago The app estimated car buyers were paying about $10,000 over “normal.”
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“At an average markup of 30%, used car prices in America still have a long way to go before they return to normal,” the CoPilot report reads.
Demand in the used car market skyrocketed during the pandemic as supply chain issues impacted 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 rate on a used car loan is 10.25%
However, switching to a used car does not usually result in a better financing rate. According to Edmunds, the average interest rate on a used car loan in December was 10.25%, compared to 6.68% for a new car loan. This compares to 7.4% and 4.1% last year.
In addition, the interest rate you pay depends in part on your credit score — the higher that three-digit number, the lower the interest rate you may qualify for.
And, of course, the price depends on the specifics of the car itself.
Nearly new cars cost $9,606 over ‘normal’
By age, nearly new vehicles (1 to 3 years old) have an average list price of $40,273, which is $9,606 or 31% more than the predicted normal price of $30,667, according to the CoPilot Index.
In the 4- to 7-year-old bracket, the median price is $29,400, an amount that is $6,731 or 30% more than the “normal” price of $22,669. Vehicles aged 8 to 13 have an average price of $18,018, or $4,621 more (approximately 35%) than the previously forecast $13,397.
Used cars with the biggest price reductions
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, pressure on new car production in recent years could act as a headwind for the used car market.
“Storage bottlenecks for new cars in 2021 and 2022 mean that there are noticeably fewer [of those] Model year vehicles that are on the road today and will become used vehicles in the future,” said Joseph Yoon, consumer insights analyst at Edmunds.
In addition, Yoon said, many 1- to 3-year-old cars that end up for sale at dealerships are leased cars that have been returned, and the number of customers leasing their cars has risen to 16 from 29% two years earlier % down in December .
“Rental fleets have also suffered dramatically from the shortage of new vehicles, which has further reduced the reliable flow of newer model used vehicles for consumers to choose from,” Yoon added.