Used Car Prices on the Rise in 2012
By: Jeff Brown

NEW YORK (MainStreet) – In the market for a used car? Kelley Blue Book urges you to buy sooner rather than later, as prices are rising.

Of course, it doesn’t pay to be strong-armed into it, especially not if your current vehicle still has some life left in it. And it will make sense to consider your used car choice carefully, as certain models command a premium.

KBB, a leading source of car-value data, says used car prices are likely to rise by 3%-5% in the first quarter of 2012, and even more in the second quarter. “Non-luxury cars and crossovers increased between $50 and $100 in the past week alone, and they will likely continue to rise in the weeks and months ahead,” KBB reports.

Between Jan. 6 and Jan. 13, the average trade-in value of a 2009-2011 mid-sized car increased $107, from $12,096 to $12,203, or 0.9%. Most other types of cars that age gained 0.5%-0.6% that week. A 5% increase in the coming months would raise the price of a $12,000 car to $12,600 – and that’s serious money for budget-conscious Americans.

Credit goes to unusual market conditions. Supply has been tightened by a slowdown in lease returns, a key source of used vehicles, while at the same time the average age of cars on the road is going up as drivers postpone purchases in the weak economy. Now more people feel they can delay no longer, driving up demand.

Careful shopping is especially important now, as redesigns have led certain 2011 models to trade at a premium, KBB says. The 2011 version of the Chevrolet Cruze and Cobalt go for $13,400, a 43% premium compared to the price of the 2010 models with older designs. At $15,700, the 2011 Kia Optima trades for nearly 52% more than the 2010 model.

These premiums far exceed the higher price typically expected of a vehicle that is one year younger. The 2011 Toyota Corolla, for instance, goes for $12,225, just 15.6% more than the price of a 2010 model, which is virtually the same except for age.

“This type of premium is typical for vehicles that have recently undergone a major redesign, especially when the outgoing generation was an underperformer in its segment,” KBB says.

While drivers who really need to replace their cars as soon as possible may be wise to get going to beat the expected price increases, others may do better by waiting.

Auto loan rates are fairly low, with many used-car loans charging only 3%-4%, according to the BankingMyWay rate search tool. Still, at 4% a $12,000 loan for 36 months would cost $354 a month. If you own your current car free and clear and can delay your purchase by a few months, the savings on payments could easily justify paying a bit more for your next vehicle.

If you're in the market for a new car because your current one didn't perform as well as expected, check out MainStreet's look at the 10 'Healthiest' Cars of 2011 to get an idea of which ones are the most reliable!

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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