Consumers Shouldn't Get Too Comfortable With Lower Used Car Prices

Used car prices may be down, but they're poised to rise again.

There was a point when the demand for used cars was so high that buyers had no choice but to pay a premium for one. Thankfully, those days may be behind us. But that doesn't mean purchasing a used car will be an inexpensive prospect in 2023.

In January, used car prices were down 11.6% on a year-over-year basis, according to the Consumer Price Index. But more recent data shows that used vehicle prices may be on the rise once more.

What will a used car cost you this year?

While used car prices may have started off a significant notch lower than they were a year ago, during the first 15 days of February, used vehicle prices rose 4.1% from January, according to data from Manheim. That's the largest February increase on record since 2009.

This doesn't guarantee that used car prices will continue to climb. But they might, and consumers need to prepare for that.

Of course, it's easy to see why the demand for used cars may be surging. New cars are still expensive to purchase due to ongoing shortages. So some consumers may be more inclined to opt for a used car to save some money. If used car prices keep rising, however, the savings might end up being less to write home about.

Should you buy a used car?

There are pros and cons to purchasing a used vehicle, regardless of how prices are trending. One major benefit of buying a used car is paying less, and having a less expensive auto loan to deal with after the fact. Plus, used cars can, in some cases, be less expensive to insure, since they're worth less money than new cars.

On the other hand, you need to be really careful when buying a used car. The last thing you want is to get stuck with a vehicle with hidden damage. A good way to avoid that, though, is to check your car's VIN number. That will give you a solid history on that vehicle so you'll know whether it's a good buy or not.

You may also need to take the step of getting your car inspected before completing your purchase if you're buying used. That could end up being a cost and a hassle you have to deal with. However, it could prevent a scenario where you end up buying the wrong used car -- and regretting it after the fact.

How much can you afford to spend on a used car?

You'll generally hear that you shouldn't spend more than 30% of your take-home pay on housing. There's not necessarily a comparable formula to use in the context of a vehicle purchase, so your best bet is to run the numbers and see what your budget looks like based on different auto loan payments.

The last thing you want to do is buy a used car you can't afford. So in addition to researching the car itself, do plenty of number-crunching so you don't wind up bemoaning your decision.