Used car values have officially hit a record high in 2021 – which can be a good and bad thing for bad credit borrowers. You may get a good offer on your trade-in, but financing may cost more right now, too.
The Good: High Trade-In Values
If you have a used car that you want to trade-in or sell, you may be sitting in a pretty sweet spot. Based on their own data, Edmunds reports that trade-in values have risen by nearly $3,000 compared to last year. The average trade-in value was $14,160 in 2020, rising to $17,080 this year. That’s quite the increase!
Thanks to the pandemic, the automotive industry is struggling to keep up with new car production. Global chip storage is largely to blame, and as a result, new vehicle production is down by 36% compared to last year, as reported by Edmunds.
With the lack of new vehicle stock to choose from, more buyers are opting for used cars, increasing demand and value for pre-owned vehicles. However, whether or not this huge increase in value is a good thing can depend on your credit situation, and what you need next.
The Bad: Used Car Prices Up
While trade-ins are yielding a higher average value right now, their selling prices are up, too. For borrowers with less than perfect credit, this may mean having to pay a little more for a used vehicle.
It’s often recommended that bad credit borrowers choose a used car because they tend to be more affordable. Right now, that may not be the case, though. Dealerships are having trouble stocking both new and used vehicles alike, forcing borrowers to choose between higher-priced newer cars, or affordable, older, used ones. Currently, certified pre-owned models and vehicles around three years old are averaging the most profit and demand.
It may be tough to find a good balance between age, affordability, and price with credit challenges. Affordability is a major concern for bad credit borrowers. They’re more likely to qualify for a high interest rate to begin with, increasing the cost of vehicle financing – higher-priced options only add to your cost.
If your credit score isn’t in great shape, it may be a better idea to hold off on financing a used vehicle right now due to soaring prices and a possible limited selection.
However, if you just have a spare car that you’ve been itching to sell, now could be the time to get a great offer for it. You could take advantage of the higher trade-in value now and keep the earnings to use as a down payment on your next vehicle in the future when prices drop.
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