Used car values have been rising since last year, and it’s largely due to the shortage of brand new vehicles. We’re covering how this could impact your car buying power as a poor credit borrower, and how it could benefit you.
New Car Stock Low – Used Values High
Right now, the U.S. is facing a shortage of necessary parts to build new vehicles, largely due to the early 2020 factory safety shutdowns at the start of the pandemic. Auto manufacturers are struggling to keep up, and the biggest culprit is a global chip shortage. Shutdowns slowed down orders and chip factories shut down as well, and now that things are opening back up, there’s some lag in the automotive and tech industries.
This impacts two huge things in terms of your car buying and selling power:
- Used car prices are going up
- Used vehicle values are higher
If you have a trade-in or are planning to sell your car, then now may be a good time to put it on the market. Dealers need vehicle inventory to make money, and your used vehicle might be worth more than it was originally projected to be worth. Since dealerships are lacking in new car stock, many are relying on used vehicles to fill the demand.
“If you have an extra car to sell it’s a great time – there may never be another time greater than this," Eric Ibara, the director of residual values at Kelley Blue Book, told the L.A. Times. “But if you’re selling a used car to buy another car, it could be difficult. I’ve been in the industry 30 years now and I have never seen the market as hot as it is.”
Since used vehicle values are up, the sales price of used cars is up as well. This could mean having to shell out more cash if you choose to buy or finance a used vehicle – which isn’t great news for many borrowers that require affordable loans on used cars. But if you’re ready for an upgrade and you want to trade in your car, now may be the time to sell before the market cools down.
Check Your Used Car’s Value
You can check the value of your vehicle on sites such as Kelley Blue Book, Black Book, and NADAguides to see the estimated private party and trade-in values for your car. Keep in mind that the actual cash value may vary depending on the dealer's current stock, your vehicle’s condition, and its overall desirability in your area.
If your car’s value is more than what you owe on your loan (if you have one on it), then you have equity that can be used toward your next vehicle purchase. If you don’t have a loan on your car, then its entire value is equity – and that’s a great position to be in right now!
Lenders also accept trade-in equity as a way to meet down payment requirements, which is very helpful to borrowers with bad credit. Bad credit borrowers are often required to have at least $1,000 or 10% of the vehicle’s selling price to meet loan requirements.
If your vehicle’s value has risen, it could help you meet or exceed that requirement, lowering the amount you need to finance for your next vehicle. And the more cash you have to put down on a vehicle, the higher your approval odds tend to be.
Great News for Underwater Used Vehicles
If you owe more on your car loan than what you can sell your vehicle for, it’s called having negative equity or being underwater. Vehicles lose value over time, called depreciation. It never stops, but depending on the demand in the market, your car’s condition, and geographic location, depreciation can slow down or speed up.
Negative equity can also happen due to a high interest rate. Bad credit borrowers tend to get assigned higher rates than their good credit counterparts, it can make it difficult for them to pay down their loan quickly enough to keep up with their vehicle’s depreciation.
For people with a lot of negative equity, selling a car can be a struggle. If a borrower can’t get an offer high enough to cover their entire loan balance, they may be forced to pay off the remainder of their loan out of pocket to sell the vehicle. Some borrowers roll over their negative equity onto their next car loan, which typically puts them in a negative equity position again. It’s a cycle that many bad credit borrowers fall into, due to high interest rates on their car loans.
But thanks to the rise in used car value, some borrowers may not be in this position anymore. Right now, used cars are high in demand – so your vehicle’s value may be steadier while you continue to pay down your loan each month. Even if this used-car-value surge isn’t enough to completely pull you out of negative equity, you still may be in a better spot now since used vehicles are holding value well, possibly making it easier for you to sell the car for what you actually owe.
Strike While the Iron’s Hot
If you’re in need of another vehicle but you’re struggling to meet the credit score requirements of a traditional auto lender, let us point you in the direction of a special finance dealership. Here at Auto Credit Express, we’ve created a nationwide network of dealers that are signed up with subprime lenders able to assist bad credit borrowers with vehicle financing.
Once you complete our auto loan request form, we’ll get right to work looking for a dealership in your local area with no cost and no obligation.