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Why are used cars so expensive right now?

Why are used cars so expensive right now?

If you’ve been looking for a used car and have been shocked by how high prices have risen, you’re not alone. While there are several factors that may have pushed used car prices upward, there are also several car financing options available for Australians in the market for a used car.

How much have used car prices increased? 

In June 2022, it was reported by the AFR that second-hand vehicle prices in Australia had jumped by 18.4 per cent in the past year.

According to the Moody’s Analytics Used Vehicle Price Index, the overall increase in used car prices since the start of the pandemic in early 2020 was 79 per cent, or 81 per cent across the entire used vehicle market, including trucks.

Why have used car prices risen? 

Much of the used car price rise comes down to supply and demand… though not necessarily for used cars themselves. A range of factors affecting the new car market may also have had a knock-on effect on used car prices.

Supply: Longer wait times for fewer vehicles 

One of the many effects of the COVID-19 pandemic was the widespread disruption of global supply chains, as factors and ports around the world shut down or slowed production to help limit the spread of the virus.

The war in Ukraine may have also affected supply chains, particularly for European car manufacturers.  

This has made it more difficult for car manufacturers to source the parts needed to construct new cars, and to ship new cars around the world to markets such as Australia. Of particular note is the shortage of semiconductors, used in many forms of electronics, from computers to home appliances, and yes, new cars.

This has led to extended wait times for new cars, where buyers may be expected to wait anywhere from 6 to 12 months or more to get behind the wheel.

Additionally, natural disasters such as floods in NSW and Queensland reportedly saw 22,000 cars written off, reducing Australia’s potential supply of used cars.

Demand: COVID-19 affecting consumer behaviours 

Demand for vehicles surged in Australia over the course of the COVID-19 pandemic. Fewer Australians felt comfortable about taking public transport, while lockdowns and travel restrictions meant that more Australians took holiday road trips rather than flights interstate or overseas.

While this put many Australians in the market to buy cars, it also led to more Australians holding onto vehicles they may have otherwise sold.

At the same time, lower interest rates and more government support reported led to more Australians feeling confident in their wealth and interested in purchasing a vehicle. It remains to be seen how recent increases to inflation, interest rates and the cost of living could affect car purchasing and car prices.

How can you finance a used car? 

If you’re in the market for a used car, but your household budget isn’t looking healthy enough to buy one outright, there are car financing options available that you could consider.

Whether you’re buying a used car privately, or buying from a dealer but would like to look beyond the dealer finance options, it’s important to compare used car loans before making a decision.

Secured car loans 

Many car loans are secured by the value of the vehicle being purchased. This extra security helps to limit the lender’s financial risk if the borrower defaults, and could mean paying lower interest rates and fees.

However, secured car loans are more likely to have stricter eligibility criteria around the vehicles they can be used to buy. As the lender needs to be confident that the vehicle’s value will be enough to secure the loan, new car loans may be limited to new cars, or cars less than two years old.

Unsecured car loans 

It’s also possible to get a car loan that doesn’t require security. This means that there are likely to be fewer restrictions around the types of vehicles you can purchase, meaning a used car could be in your reach.

However, unsecured car loans tend to have higher interest rates and fees than their secured counterparts, and may be limited to borrowers with good or excellent credit scores.  

Company
Product

Green Car Loan

Real Time Rating™

3.09

/ 5
Interest Rate

From

4.99

% p.a

Fixed

Comparison Rate*

5.90

% p.a

Monthly repayment

$566

Real Time Rating™

3.09

/ 5
Go to site
Company
Product

Used Car Loan (< 5 years, Dealer Only) (Fixed)

Real Time Rating™

2.82

/ 5

Winner of Best Used Car Loans, RateCity Gold Awards 2022

Interest Rate

6.49

% p.a

Fixed

Comparison Rate*

7.04

% p.a

Monthly repayment

$587

Real Time Rating™

2.82

/ 5
Go to site

Winner of Best Used Car Loans, RateCity Gold Awards 2022

Company
Product

Used Car Loan

Real Time Rating™

2.68

/ 5
Interest Rate

From

5.99

% p.a

Fixed

Comparison Rate*

6.99

% p.a

Monthly repayment

$580

Real Time Rating™

2.68

/ 5
Go to site

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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