If you’re in the market for a used car, you may have seen the fluctuating prices over the past few years. During the pandemic, car prices soared due to part and inventory shortages, along with increased shipping costs. While the price of used cars is not the same as it was circa 2020, we can’t expect the cost of vehicles to return to post-pandemic prices.
While used car prices are higher than they were before the pandemic, the prices are stabilizing according to recent data pulled from the Manheim Used Vehicle Value Index. We may not see a drastic drop in prices, but the market will cool off slightly as demand drops throughout the United States.
How Do I Get an Affordable Used Car?
Getting an affordable used car is tied to a few different factors. If you’re ready to make a purchase within the next few weeks or so, keep these items in mind.
Your Budget
What is affordable for you may not be affordable for another person. It’s important to shop around for your budget and consider all the factors that impact your ability to afford a monthly payment. Remember that on top of the car loan payment, you need to pay for insurance, gas, and regular maintenance on your car. Cars tend to have different maintenance schedules, so make sure that you consult the manufacturer’s handbook.
Your Down Payment
The amount of money you put down when financing a car will greatly impact the affordability of the vehicle. The more you can put down (whether you have cash or are trading in a vehicle), the lower the total balance of your loan. For example, let’s say that you plan to purchase a vehicle that costs $32,000. You can put $10,000 down and include the trade in value of your used car, which is around $9,000. The principal balance of your loan (not including interest or origination fees) is $13,000.
The Interest Rate of the Loan
If you cannot afford to pay for the total cost of the car upfront, then you will need to take out a car loan. The interest rate of the loan is another factor that impacts the total amount of money you are expected to pay back. The higher your credit score and creditworthiness, the lower your interest rate will be. But, keep in mind that even if you have a prime credit score, the Federal Reserve affects the baseline interest rates for car loans. This is due to the fact that the rates set by the Federal Reserve will impact how much it costs lenders and other financial institutions to lend money to borrowers.
If you take out a car loan, you are expected to pay the principal amount, plus interest and fees. Most lenders charge origination and underwriting fees. If we review the example above, we can calculate the potential monthly loan amount based on an estimated interest rate. If the principal of the loan is $13,000 and the interest rate is 10%, the estimated monthly payment for a 60 month loan is $276. Keep in mind that Experian recently reported that the average monthly car payment is around $500 for a used car, and increases up to $700 for a newer car.
The Lender or Dealership You Work With
Not all car loans are created equal. The total cost to finance a vehicle can vary depending on your creditworthiness and other factors, like the lender or dealership you decide to work with. It’s important to compare your options and find the least expensive loan to finance a new or used car. Some websites let you shop by rate and monthly payment, so you can do a little bit of research before you even step foot into a dealership to check out cars.
The Car You Want
Although we would all love an Aston Martin DBX or a Porsche 911, we need to stay within our budget as much as possible. You can still shop for a car you want, but it may not be your dream car! Before you shop for a used car that is affordable for you, make sure to shop around online. Websites like Kelley Blue Book and Edmunds will let you review the cost of similar cars online, so you aren’t stuck looking at one dealership at a time. The price of used cars can vary depending on the market conditions, so if you can wait a few months for the price to drop, go for it!
When shopping online for cars, make sure to consider the MSRP, current condition, and the car’s maintenance and accident records. If you have the car’s VIN, you can learn more about its history by using websites like VIN Decoder and CarFax. With CarFax, you’ll be able to see the car’s accident history, which includes the car’s damage severity and any records of the repairs. If there was significant structural damage to the car that required a bonded title, you’ll be able to find it online as well.
What is the Average Cost of a Used Car?
The average cost of a used car has decreased by 3% according to the consumer price index report from the Bureau of Labor Statistics. 
That being said, remember that the rates for automotive installment loans have been fluctuating within the last few years, so the total cost of financing a used car is different from the cost of purchasing a vehicle outright from a dealership or private party. If you can’t afford to pay for a car with cash, you will need to do your research and find an auto loan lender or dealership with the most affordable rates for your finances.
Shop Smart and Get an Affordable Used Car
At the end of the day, the smartest thing you can do as a consumer is to get a car payment that you can afford. Stay away from living outside of your means and shop as smartly as you can! When reviewing your budget to determine if you can afford a new car payment, make sure to factor in gas, maintenance costs, and the total monthly payment. By being as thorough as possible, you are more likely to get an affordable used car that fits your budget.
