Car prices aren't what they used to be. As we've seen over the past few years chip shortages and supply chain issues ravaged much of the U.S. new car inventory, making vehicles hard to find and driving up prices.
As we roll into 2023, some of these issues are being alleviated, though inventory is far from what it used to be. Will we see a time when car prices reach pre-pandemic levels? Let's take a look.
Why Are Car Prices So High?
Car prices are high right now due to many factors, including supply chain issues, new inventory shortages, raw materials shortages, the war in Ukraine, inflation, and dealer markups.
Way back in 2021, experts predicted the vehicle shortage that's putting the squeeze on prices may not let up until well into 2022 or even early 2023, and as we know, that's definitely the case. Prices are still soaring over pre-pandemic levels, though they are starting to drop in some segments of the market, like used cars, according to an analysis by iSeeCars.
When Will New Car Prices Become Cheaper?
There's no set indication that new car prices will become much cheaper this year. According to a recent report from JP Morgan new car prices are only estimated to fall around 5% this year as inventories begin to build.
Average car prices were the highest they've been in September of 2022, with the average consumer spending $45,665 for a new car. That's $3,465 higher than consumers paid in 2021, according to JD Power.
According to the Experian State of the Automotive Finance Market report, the average new car loan amount was also up 10.36% in Q3 2022 over the third quarter of 2021, with the average loan amount being $41,665.
Now, you can find better prices than even last month, as many automakers begin to offer incentives, especially for leasing. However, the price of new cars isn't expected to dip much in the upcoming year. As we move toward more EV products and more standard features on all vehicles, prices are raising to match ever-mounting costs.
When Will Used Car Prices Become Cheaper?
According to iSeeCars, used car prices have begun to come down from their peak. Prices first fell slightly – 2% – in November of 2022, then another 3% in December.
Prices are down most on the Tesla Model 3, which has seen a 17% drop in price since September. In their study iSeeCars analysts pointed out that prices for used cars had fallen every month in 2022, but never dipped below 2021 pricing until November. This marked the first time year-over-year values have fallen since June 2020.
Not all vehicles are enjoying a dip in used car prices, but according to their study, iSeeCars has given us a look at which vehicles have come down the most, making them some of the cheapest you can buy compared to their prices last year.
The top five vehicles whose used car prices have come down the most between September and December 2022 are:
- Tesla Model 3 – 16.8% drop, down $8,822 to $43,817
- Nissan Kicks – 11.9% drop, down $2,718 to $20,046
- Ford Mustang – 11.5% drop, down $3,495 to $26,852
- Hyundai Ioniq Hybrid – 11.0% drop, down $2,527 to $20,542
- Toyota RAV4 – 8.9% drop, down $2,766 to $28,383
As prices continue to see a downward trend on used cars, it's important to remember that many factors go into the price of a car. It's worth it to do your research to find the cheapest vehicle that meets your needs in your area.
Getting a Good Deal as a Bad Credit Borrower
If you're a bad credit borrower, you can wait it out and improve your credit over that time, but if you can't wait, working with the right lender is key. As a bad credit borrower, your options are a bit more limited, but far from gone.
You can look for pre-approval from a direct lender, such as your bank or credit union. You can also try your hand at working through the captive lender of an automaker -- some, like Kia, Ford, and Hyundai are known for working for many types of borrowers.
You may have your most luck by working with a special finance dealership or BHPH lot though, especially with credit issues.
It pays to know the ropes before you head out to the dealerships when you're looking for the cheapest deal on a car loan. Knowing which dealers work with bad credit lenders is also key. You have options when it comes to getting a car loan, but not all lenders work with all credit situations.
Those that do are called subprime lenders and they look at more than just your credit score to qualify you for an auto loan.
Tips For Getting The Cheapest Car Loan You Can
With auto prices high, it may take a little work to get the deal you're looking for. Getting the cheapest car you can doesn't mean getting something for $5,000 or less, but getting a vehicle you can afford.
In order to do this, here are three tips you can use:
1. Stick to your budget
You don't want to go broke trying to pay for your car loan, so a good rule of thumb is to make sure your payment takes up as little of your available budget as possible. We recommend no more than 20% of your income goes to your car loan, but the lower the percentage the better.
2. Choose the shortest loan term you can
When you're a borrower with lower credit, you're typically assigned higher interest rates, so the longer you take to pay off your loan, the more you end up paying.
3. Bring a down payment
A down payment is one of the best tools you have when it comes to getting an affordable auto loan. The more you pay upfront, the less you have to finance and the less you pay in the long run.