As Used-Car Prices Fall, Financing Costs Rise

Prices of used cars are off their painful peak and should continue to ease, but rising interest rates are killing any gains in affordability for those who can’t bring cash to the table.

people in a car dealership
(Image credit: Getty Images)

In the market for a car? There are a few hopeful signs for buyers with cash, according to Ivan Drury, director of insights at Edmunds, the car shopping experts. Used-car wholesale prices peaked in the spring, and have declined 10% since then, though prices are still 55% above their prepandemic levels. November and December are usually good months to buy, as prices start to reflect the imminent turn of the calendar and an extra year of depreciation. Expect prices to drop by another 10% in 2023 because of a slow-growing economy.

For buyers who must borrow, it’s a different story. Average loan rates keep climbing along with Federal Reserve interest rate hikes. Rates on used-auto loans are now 9.2%, with an average term of 70 months. Loans for new vehicles are at 5.9%, and also 70-month terms. Zero-interest incentives are often offered only for short time periods, such as 36 or 48 months. High interest rates are keeping some would-be buyers out of the market altogether, but are mostly having the effect of driving more buyers from the new to the used-car market because of affordability issues.

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David Payne
Staff Economist, The Kiplinger Letter

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.