SANTA MONICA, CA — November 08, 2018 — Budget-conscious car shoppers seeking an escape from record-high new vehicle prices might not find much relief in the used market, according to the latest Used Car Report released by the experts at Edmunds. In the third quarter of 2018, the average used-vehicle price reached $20,084, the highest since 2005 and a 3.5 percent increase year over year.
"Used vehicle prices have been steadily rising over the years, but this is the first time we've seen them cross the $20,000 threshold during the third quarter," said Ivan Drury, Edmunds' senior manager of industry analysis. "While an abundance of off-lease vehicles continue to drive up these costs, we're also seeing consumers flock to purchase lower-priced vehicles, which is dramatically shrinking the supply of more affordable options in the used market."
Edmunds experts found that vehicles under $35,000 spend an average of 37 days on the lot, a 5.3 percent decrease from five years ago. Used vehicles under $10,000, the most affordable used-car segment, are also growing increasingly scarce & this segment has dropped from 25 percent of sales during Q3 of 2013 to only 16 percent of sales this quarter.
Edmunds analysts note that another factor contributing to overall increases for used vehicles is the growing cost of borrowing money. In the third quarter, the average annual percentage rate (APR) for used vehicles climbed to 8.3 percent, an 11 percent increase from last year. The average down payment for a used vehicle hit $2,613 in the third quarter, and the average loan term length rose to 66.9 months, the lengthiest Edmunds has on record since 2008.
"Shoppers are attempting to mitigate the increasing costs of financing by putting bigger payments down and increasing their loan terms," said Drury. "Unfortunately, neither method has been that effective. Average monthly payments hit $400 a month this quarter, the highest level we have on record."
With costs rising across the board, Edmunds experts say used-vehicle shoppers may seek out purchase alternatives. In this report, Edmunds experts took a look at monthly payments by purchase type (new, lease or used) for popular selling models in the United States, and although used vehicles continue to represent a more affordable option, there are many instances in which a lease will be competitive with a payment for a used vehicle, or even be cheaper. Edmunds research found that the average monthly payment for a brand-new Honda CR-V is $486, while the average lease payment is $355, which is just above the average monthly used payment of $348 for the same vehicle. For the Toyota RAV4, the average monthly payment for a new purchase is $461, whereas the average lease payment is $326, which is $29 less than the average used payment of $355.
"Used-vehicle shoppers are now facing the prospect of payments that could easily put them in a lease for a new vehicle. And, the prospect of owning a car that is nearly 10 years old when it is fully paid off could be a daunting one for some consumers," said Drury. "As used and lease vehicle payments continue to rise, it will be interesting to see whether there is a price point that will compel used-vehicle shoppers to begin to make the jump to leasing, or keep playing the long game in hopes of eventually building equity in their vehicle."
To read the full report, visit the Edmunds Industry Center.
Edmunds guides car shoppers online from research to purchase. With in-depth reviews of every new vehicle, shopping tips from an in-house team of experts, plus a wealth of consumer and automotive market insights, Edmunds helps millions of shoppers each month select, price and buy a car with confidence. Regarded as one of America's best workplaces by Fortune and Great Place to Work, Edmunds is based in Santa Monica, California, and has a satellite office in Detroit, Michigan. Follow us on Twitter, Facebook and Instagram.