How to Buy a Used Car in This Tough Market
The used-car price run-up is cooling but still very high
By Benjamin Preston
After a historic used-car price spike throughout much of last year, prices have begun to plateau. Although they haven’t yet deflated to levels that would fall into deal territory, recent moderation may present the faintest glimmer of hope to used-car shoppers. They’re seeing at least some relief from prices that were spiraling out of control, even as fuel prices and interest rates remain higher than in recent years.
That said, the luxury of waiting for a sunnier economic outlook isn’t available to everyone. If you need to buy a used car now, Consumer Reports can tell you how to make the best of the current situation, with expert advice and market insights from industry insiders.
In good times and bad, Consumer Reports members can search our Used Car Marketplace for vehicles for sale in their area, sorting by the factors that matter most. The listings include CR reliability and owner satisfaction ratings, and there’s a free Carfax report for most of the vehicles. Members can also access ratings and information on used vehicles going as far back as 20 years.
Our main advice for buyers in this tricky market is: Act quickly and negotiate from an informed perspective. That can make the difference between getting a fair deal or paying too much.
Consider buying a new car. If you’re looking at newer used cars—models in the 1- to 3-year-old range, you may find that prices push close to what they sold for new. If you have to borrow money to buy the car, it may be better to find a new car that can qualify you for a lower interest rate, to say nothing of the benefit of a fresh factory warranty.
Look at older models. Everything is more expensive, so your budget may preclude used cars on the newer end of the spectrum. Consumer Reports recommends looking at older models known for reliability. They will provide better value than more recent models that can be closer in price to new cars.
Prearrange financing. If you need to finance a used car, be careful. Keep in mind that higher interest rates are going to make it more expensive than it already is. Figure out your budget and get financing based on what you can afford to pay monthly, and as a down payment. It’s always a good idea to get financing set up through your bank or credit union before going to a dealership to look at cars because it gives you a baseline against which you can compare the terms of dealer financing, which may or may not be a good deal.
As always, getting financing secured for a private-party sale is a little more tricky. You’ll need to have the funds secured and ready to pay out so that you’re able to buy a car quickly if you find one that’s reliable, fuel-efficient, and meets your needs.
Cast a wide net. Prices outside your area may be better. You can find a good variety of used models on websites like TrueCar and through CR’s Used Car Marketplace. Expand your geographic search if you need to. Be cautious about casting your net too wide, though. You want to be able to go see the car and test-drive it before signing a sales or leasing contract, especially for used cars. And with the market being as tricky as it is right now, the car you’re looking at might not be there if you have to travel too far to get to it.
Do your research. Whether buying new or used, consult Consumer Reports’ road tests and ratings, looking at reliability, owner satisfaction, and safety.
You want a short list of contenders to test-drive, and even more than before, you want a good understanding of the various trim versions and features because you might not find your dream configuration at a dealership. Print material from CR.org and the manufacturer websites so that you have it with you.
Buy something reliable. If you’re forced to pay more than usual for a used car, you may find yourself perusing older models than you would otherwise have considered. CR recommends taking any used car to a reputable mechanic to have it inspected. (If the owner or dealer balks at this request, you may be better off looking elsewhere.) You can also consult CR’s predicted reliability scores to make sure you buy something reliable that won’t give you problems later on.
Compromise to a degree. If you have to buy an older car or something other than what you had originally wanted, some of the features you seek may have been more scarce or unavailable when the car was originally manufactured. Decide which features are absolute must-haves, but be flexible. As always, you’re more likely to find deals among less sought-after models like small sedans and front-wheel-drive SUVs, while larger SUVs and pickups are likely to be more expensive and quicker to sell.
Don’t borrow too much. Put as much money into a down payment as you can afford. That will reduce the amount you have to pay in interest and reduce the chance that you’ll be left hanging as your aging car’s value sinks over the years.
For example, if you have to borrow $15,000 for a used SUV that will be worth less than $10,000 in a year or two, you may end up owing more than the car is worth—an unenviable position known as being “underwater.” If you crash the car or it’s stolen, you’ll still have payments but no car. Cars are depreciating assets in the best of times, but they’re likely to depreciate much more quickly if and when prices come back down to “normal” levels.
Buy back your lease. If you’re coming to the end of your lease, consider buying it back. If you signed your lease before used-car prices began going crazy early in 2021, the contract details—and all the number-crunching to figure out the car’s future value at the end of the lease—will have put the buy-back price well below the current market value. In other words, you can buy your own car for far less than you would have if you had to buy it from a dealer.
Why Are Prices So High?
A lot of it comes down to the global microchip shortage and other supply-chain disruptions that have plagued many industries since the dawn of the pandemic. Chips control everything on a car from infotainment screens to window motors. It’s the main culprit behind the current tightness in the new- and used-car markets, multiple experts tell CR, and it has also affected the availability of other consumer products.
And it doesn’t appear to be getting better anytime soon. This spring, Pat Gelsinger, CEO of Intel, one of the larger chip manufacturers, downgraded his prediction for when semiconductor stocks would bounce back to normal. Now, he says, it might stretch into 2024.
“There are also reports of supply disruptions for a number of other components, including airbags and even the insulation mats that go under the hoods of vehicles,” says Sam Abuelsamid, an analyst with Guidehouse Insights, an auto industry analysis firm. “These sorts of disruptions are caused by a variety of challenges, including shipping delays and ongoing disruptions in Asia, as well as labor shortages that are also expected to last into 2023.”
According to the Consumer Price Index report from July, used-car prices are 6.6 percent higher than last year, although still more than 50 percent higher than they were in February 2020, before pandemic-related disruptions catapulted the economy into turmoil. Quite simply, new-car shortages continue to put pressure on the used market.
The results of a nationally representative car-buying survey conducted by Consumer Reports in spring 2022 indicate that higher new- and used-car prices have changed people’s buying habits significantly. Fewer people are looking for used cars, more are looking for new cars than in 2019, and more are considering buying a car in a higher price range.
“Consumers realize that used cars are not the great deal they once were, particularly as higher interest rates can actually make them more expensive for those who have to finance them,” says Jake Fisher, senior director of CR’s Auto Test Center.
Pat Ryan, CEO of CoPilot, an app that helps car buyers keep track of prices and find the best deals, says that according to his data, some brands and types of vehicles are relatively more expensive than others. At the low end are Subarus, which he says are selling for about $6,700 above what would have been considered normal a couple of years ago. Trucks and SUVs are more than $10,000 above normal, on average, and on the high end, used Teslas are selling for almost $20,000 more than they usually would.
The result, Ryan says, is that older models tend to be more affordable right now.
“If you can afford to buy a $20,000 used car, you can still get one. It will just be an older car for the same money,” he says. “If you are considering buying a car that is 1 to 3 years old, prices are still way too high.”
Abuelsamid surmises that inflation, higher interest rates on auto loans, and high dealer markups are contributing to the slowing demand.
“Also, people have probably become accustomed to the shortages and simply aren’t looking unless they really need a vehicle right away,” he says.
Ryan says used-car prices may begin to come down in the not-too-distant future.
“Prices are already starting to cool off, and that will accelerate as interest rates go up,” he says. “People are getting tired of paying 98 percent of the new-car price for a used car.”
More from Consumer Reports:
Top pick tires for 2016
Best used cars for $25,000 and less
7 best mattresses for couples
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