Used Car Prices Are Down 8.8% From a Year Ago. Should You Buy One?

You can finally get a break -- assuming you find the right vehicle.

If you're in the market for a new vehicle, expect to pay more for it. Due to an ongoing chip shortage, new cars are still only available in limited quantities. And any time there's not enough supply of a given product, its price tends to surge.

But while buying a new car may be a more expensive prospect these days, used car prices have finally dropped to a notable degree. In fact, as of December of 2022, used car prices were down 8.8% on an annual basis, according to the Bureau of Labor Statistics.

As such, you may be tempted to purchase a used car instead of a new one to save money on everything from your down payment to the ongoing auto loan payments you'll be looking at. And in many cases, a used car might also mean paying less for auto insurance.

But are you better off with a used car than a new one? Ultimately, it depends on the circumstances.

A used car could be a mixed bag

If your ultimate goal is to spend less money on an automobile upfront, then buying used is the way to go. The savings you reap might be significant. But what you save initially, you might lose out on in the form of costly repairs.

It's common for new cars to come with a warranty that lasts three years or 36,000 miles. And you can often, for a modest fee, extend that warranty to five years or 60,000 miles -- if not beyond. That will generally limit the amount of money you're required to spend on car repairs, since warranties are designed to cover major issues ranging from transmission problems to engine failures.

When you buy a used car, you don't get that same level of protection. And also, you're not getting a car with new parts. So your chances of having to shell out money for vehicle repairs may be a lot higher.

Now that said, the math might still work out in your favor with a used car. Let's say you can purchase a used vehicle for $15,000, but you're looking at $30,000 for a comparable car that's new. Even if you end up spending $12,000 on repairs over the next five years for your used car, it's still the less expensive option all-in.

But let's remember that car repairs aren't just costly. They can also be a huge inconvenience. Your auto insurance may not cover the cost of a rental while your car is in the shop. So you may have to deal with the hassle of borrowing a car or hitching rides every time your vehicle becomes unavailable due to needing to be fixed.

What's the right call?

Buying a used car makes more sense these days than it did a year ago, when prices were much higher. And if you buy a certified used car from a reputable dealer, you may find that you're not hit with so many costly repairs following your purchase.

But when you buy a new car, you get the peace of mind that comes with not having to foot the bill for major repairs for several years. And if that's important to you, then you may want to compare prices before assuming that a used car is absolutely the right call.