Thinking of Buying a Used Vehicle? Here's Why Graham Stephan Says You Should Wait

Don't overpay for a used car when prices could fall soon.

If you are in the market to buy a used vehicle, it may be a smart choice to wait a little while before moving forward with your purchase. Real estate investor, finance expert, and YouTube personality Graham Stephan recently explained why he thinks you should put off your purchase, calling this "one of the worst times for you to buy a vehicle."

Here's why Stephan thinks buying now would be a big mistake.

Graham Stephan has evidence that vehicle prices could soon plummet

According to Stephan, the big reason why he believes the price of used vehicles is going to fall soon is because delinquencies on auto loans are surging.

Stephan said that close to one in four vehicle loans in Washington D.C. is in default, compared to a delinquency rate of between 2% and 3% in normal times prior to 2020. He believes that the way loans are issued is the reason why default rates are so high in D.C., and across the country: Many dealers are making their profits in financing, rather than via car sales, and are lending money to people who cannot afford to pay it back.

Stephan said about 85% of all cars are financed, and an oversight in regulation has allowed dealers to make auto loans without conducting proper background checks to ensure the loans were actually within the borrowers' price ranges. Since people cannot afford the loans they have taken on, a growing number of people are defaulting and their vehicles will be repossessed.

This glut of vehicles that will be taken back by lenders, coupled with higher gas prices, is likely to cause a dramatic decrease in used car demand -- which will in turn send prices falling. In fact, he said this trend has already begun with an observable "price point drop in every single segment."

As he explained, "If we continue with the same trajectory, we could be due for an 18% decline in used car value." Because of this, it would make little sense to buy a used car now, when you'll probably be able to get the vehicle for substantially less next year.

Is Stephan right?

Stephan certainly makes a persuasive case that defaults on used vehicles could increase and that this, combined with the high cost of fuel, could make cars cheaper. Of course, there is no guarantee, especially as car prices have been rapidly rising due to inflation and supply chain issues.

If supply remains constrained and auto makers continue to struggle to produce a substantial amount of new cars, prices may not fall as fast as he is projecting -- especially because many people buy new cars not because they want to, but because they have to, as something has happened to their old vehicle, such as an accident or an expensive repair that's not worth it.

Ultimately, whether you buy a car now or in the coming months, you should make sure you research your financing options carefully and decide on the best way to pay for it -- whether that's a car loan, a personal loan, or paying cash. And you should make sure to look at price trends and how the cost of the car compares to other vehicles, so you don't pay more than you should.

By putting in the research, you can hopefully get a good car at a fair price you can afford, no matter when you buy.