The value of used cars has increased since last year, and this is largely due to the shortage of new vehicles. We explain how this could impact your car buying power as a poor credit borrower and how it could benefit you.
Low New Car Inventory – High Used Values
Right now, the United States faces a shortage of the parts needed to build new vehicles, in large part due to factory security shutdowns in early 2020 at the start of the pandemic. Automakers are struggling to keep pace, and the main culprit is a global chip shortage. Closures have slowed orders and chip factories have also closed, and now that things are reopening, there is some backlog in the auto and tech sectors.
This impacts two huge things in terms of your car’s buying and selling power:
- Used car prices rise
- Used vehicle values are higher
If you have a trade-in or are considering selling your car, now might be the time to put it on the market. Dealers need a vehicle inventory to make money, and your used vehicle may be worth more than you expect. As dealerships run out of stock of new cars, many rely on used vehicles to meet demand.
“If you have an extra car to sell, it’s a good time – there may never be another greater moment than this,” said Eric Ibara, director of residual values at Kelley Blue. Book, at the LA Times. “But if you’re selling a used car to buy another car, that might be difficult. I’ve been in the industry for 30 years now and have never seen the market as hot as it is.
As the value of used vehicles is on the rise, the selling price of used cars is also on the rise. This could mean having to shell out more money if you choose to buy or finance a used vehicle – which is not good news for many borrowers who need affordable used car loans. . But if you’re up for an upgrade and want to trade in your car, maybe now is the time to sell before the market cools down.
Check the value of your used car
You can check the value of your vehicle on sites such as Kelley Blue Book, Black Book, and NADAguides to see the private portion estimate and trade-in values of your car. Keep in mind that the actual cash value may vary depending on the dealer’s current inventory, the condition of your vehicle, and its desirability in your area.
If the value of your car is more than what you owe on your loan (if you have one), you have equity that can be used for your next vehicle purchase. If you don’t have a loan on your car, then its total value is equity – and that’s a great position to be in right now!
Lenders also accept trade-in equity as a way to meet down payment requirements, which is very helpful for borrowers with bad credit. Borrowers with bad credit are often required to have at least $ 1,000 or 10% of the vehicle’s selling price to meet loan requirements.
If the value of your vehicle has increased, it could help you meet or exceed this requirement, reducing the amount you need to finance for your next vehicle. And the more money you have to put into a vehicle, the higher your chances of getting approved.
Great news for used underwater vehicles
If you owe more on your car loan than you can sell your vehicle for, it’s called having negative equity or being under water. Vehicles lose value over time, which is called depreciation. It never stops, but depending on market demand, the condition of your car, and geographic location, depreciation may slow down or accelerate.
Negative equity can also occur due to a high interest rate. Bad credit borrowers tend to be given higher rates than their credit counterparts, so it can be difficult for them to pay off their loan quickly enough to keep up with the depreciation of their vehicle.
For people with a lot of negative equity, selling a car can be difficult. If a borrower cannot get an offer high enough to cover their entire loan balance, they may be forced to repay the remainder of their loan out of pocket to sell the vehicle. Some borrowers carry their negative equity over to their next car loan, which typically puts them in a negative equity position. again. It is a cycle in which many borrowers with bad credit fall, due to the high interest rates on their auto loans.
But thanks to the rise in the value of used cars, some borrowers may no longer be in this position. Right now, used cars are in high demand – so your vehicle’s value may be more stable as you continue to pay off your loan each month. Even if this increase in the value of used cars is not enough to get you out of negative equity completely, you may still be in a better position now, as used vehicles hold their value well, so that which may make it easier for you to sell the car for what you actually owe.
Strike while the iron is hot
If you need another vehicle, but are struggling to meet the credit score requirements of a traditional auto lender, let us direct you to a special finance dealership. Here has Express auto loanWe have created a nationwide network of dealerships that have signed up with subprime lenders capable of helping bad credit borrowers with vehicle financing.
Once you’ve completed our auto loan application form, we’ll immediately get to work finding a dealership in your area, with no fees or obligations.