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In the Market for a Used Car? You're Better Off Waiting

By Ross Edwards
Monday, Aug 10 2009 13:31

We're in the middle of what is possibly the best time ever to buy a new car.  Automakers are offering unprecidented discounts and banks are offering low interest rate car loans.  Plus if you've got an old gas guzzler, Cash for Clunkers will give you a huge trade-in to use for your down payment. If you're in the market for a new car, you'd better act fast or you'll be kicking yourself for missing out on a great deals.  But what about used cars?

Exactly the opposite.  If you're shopping for a used car, your best bet is to wait a few months.  Cash for Clunkers, while provifing a boon for new car sales, will likely cause a steep rise in used car prices.   

According to a press release by Kelley Blue Book, used car prices could experience a bubble during the Cash for Clunkers program.  Already under Cash for Clunkers, 250,000 used vehicles, which make up approximately 1.6% of the market, have already been taken off the road.  With the $2 billion infusion Congress and President Obama recently approved, as much as 4.6% of the used car market could be scrapped.  

That huge loss of used cars, as many as 750,000 according to KBB, is large enough that it will push used car prices up by decreasing supply substantially.  Used car dealers have forseen this and are snatching up as many used vehicles as they can in anticipation, which is driving prices up even more.  

If you can, wait on your used car purchase until the Cash for Clunkers money runs out, at which point KBB says used car prices should return to normal.  


Confused or unsure about some of the car loan terms used in the article? Click here for our Auto Loan Glossary.



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