More Buyers Shifting Towards Used Cars – Even Those with Good Credit
If you go looking around Colorado Springs for used cars, you might notice that more and more people are looking for them as well. Why? Because used car sales are an almost record high in 2016. That’s not because there is an increase in bad credit, or because the economy is whacked. Actually, even car buyers with exceptional credit scores and jobs are shifting gears towards used car buying. With their latest report on auto loans, Experian Automotive shows that more buyers are taking out loans for used vehicles as opposed to new ones. While this provides an accurate reading for what’s moving towards dealerships, it still doesn’t take into account all those consumer who are buying used cars off of websites like Craigslist. Therefore, the amount of used cars currently purchased is even more than you might initially think.
But, why is there such a large shift towards used cars? Let’s take a look at some of the numbers from that Experian report, and then explore a couple of the reasons why people might be moving towards used car buying.
“One of the biggest trends we continue to see is the shift into used vehicles by customers with excellent credit,” according to Melinda Zabritski, who is the Senior Director of Automotive Finance for Experian.
Indeed, this quote holds true when backed up by the stats. In the second quarter of this year, 43.3 percent of consumers with the highest super prime credit rating (who took out an auto loan) did so with the intention of buying a used car. That equates to a 10 percent increase compared to the same time last year.
59.9 percent of consumers with a prime credit rating (which is one step below the highest rating) grabbing loans to buy a car, truck, and SUV in the second quarter also chose to go the used route. That’s a 6.6 percent increase over the second quarter of 2015.
Total, used vehicles accounted for 55.6 percent of all auto loans written in the second quarter. This is a new high, and is undeniable proof that used car sales really are on the rise.
Why are Consumers Switching?
But, why such a drastic change from last year? According to Kelley Blue Book, the average price for a new vehicle has topped $34,000. This represents a significant increase in new vehicle pricing, and consumers don’t want to pay for that. Therefore, getting a loan for a used vehicle is significantly cheaper, compared to the average amount borrowed of $29,880 for a new car in the second quarter. How much cheaper? On average, the auto loan taken out for a used vehicle is $19,101 — which is more than $10,000 cheaper compared to an auto loan for a new car.
For the savvy car buyer, going used is clearly a good way to cut costs. But, surely cost and preference can’t be the only reasons. In fact, it’s not.
With the price of the average vehicle being $34,000, depreciation is even more depressing to think about than before. As soon as you drive off the lot, your vehicle will lose a percentage of its value. Then, it will continue to depreciate over the years of ownership until you decide to sell it. But, at that point it’s only worth a fraction of what you paid for it. Since the average price of a new car has gone up compared to last year, this proves to be an even tougher pill to swallow.
Because of this, it’s safe to speculate that the depreciation is a large part of the reason why consumers don’t want to buy a new car. After all, the higher the price of a vehicle, the harder the hit it takes when depreciating. Suddenly, that $100,000 Maserati doesn’t sound so good when you’ll only be able to sell it back for approximately a half or even a measly third of the price down the road. While that’s a very high-end example, the same principle applies to any new vehicle that might cost $34,000.
Less of a Credit Risk Buying Used
Something that most people don’t think about when buying a new car is how much of a potential credit risk it is. While getting a new car loan is a great way to either start building credit or getting your bad credit back on track, what happens if you lose your job in the middle of paying back your car loan? Now you have to find a way to pay the remainder of your loan. Not only will your new car get repossessed if you fail to make the payments, but these are the types of situations that absolutely tank your credit score, and leave scars on your credit report. Failing to make payments on time, especially car payments, is a surefire way to put you in a situation that’s very hard to get out of. The worst part? When you go shop for a new car later on, you might not have good enough credit to get a decent loan — or a new car loan at all.
When you buy a used car, you actually have the potential to avoid loans entirely. If you have the funds available, you can pay the entire cost of the car upfront and drive it away debt-free. Alternatively, even a used vehicle loan will be easier to manage (and potentially shorter) than a new car loan.
These facts combined with the increased price of new cars in 2016 — and the fact that a used car loan is $10,000 cheaper on average — makes it easy to see why many people are switching over to buying used cars. Especially those consumers with good credit who want to keep it that way. After all, if buying a used car is less of a credit risk, why take a chance of ruining your super prime score by buying a much more expensive new car?
Consumers are getting savvier when it comes to car shopping and keeping their credit in tip-top shape. Preserving your credit score by getting a cheaper car with a smaller auto loan? For most shoppers, that sounds like a win-win.