As we move through 2023, the auto market is showing signs of a significant affordability crunch. The supply of used cars has decreased year over year, and at the same time, their prices have skyrocketed. This situation is terrible news for those who want to buy a car, as they are faced with high-interest rates of over 13% on average.

If you’re wondering how people are buying used cars with such high-interest rates, you’re not alone. In this article, we will delve deeper into the current market trends and the reasons why used cars are selling faster than ever before. We’ll also explore some examples of how high-interest rates make it absurdly expensive to buy a car.

The Data on Used Car Prices

According to the February 14th auto market update from Cox Automotive, the average used car APR is 13.18%, while new car interest rates are at 8.62%. Used vehicle supply is down 13 days year over year, while new car supply is up 22 days. Wholesale used vehicle prices are going up, while retail used vehicle prices are going down. This compression of the margin between what dealers have to pay for vehicles and what they know they can sell them for means the profit margin is nowhere near what it had been in the past. This situation is a part of the reason for the affordability crunch.

An Example of the Impact of High Interest Rates

Let’s consider the case of a customer looking for a 2019 Ford F-250 Super Duty on The car’s selling price is $57,900, and the dealer has been sitting on it for 47 days. The advertised price is $2,000 off, but even with that discount, the interest rate makes the purchase absurdly expensive.

Suppose the customer is based in Sacramento, California. They could use the monthly payment calculator on, which takes into consideration the out-the-door price, including taxes and fees. With no money down and a 60-month loan term, a 5% APR would result in a $1,209 monthly payment. However, with a 13.2% APR, the monthly payment would be nearly $1,500. That’s almost $300 more per month, making it difficult for most people to afford.

What About Financing for Businesses?

Let’s consider the case of a business owner looking for a 2019 Ford F-250 Super Duty. Suppose they are putting down 10% ($6,400) and taking out a loan for the remaining $58,500. With a 60-month loan term at a 13.2% APR, the monthly payment would be $1,318. However, stretching the loan term to 84 months would bring down the monthly payment to $968. Still, the total interest paid would be almost $32,000.

If the business owner decides to stretch the loan term even further to 96 months, the monthly payment would go down to $896. But, the total interest paid would be almost $40,000. It’s a classic case of robbing Peter to pay Paul, and it’s not a sustainable solution.

The Affordability Crunch

The situation above is just one example of how the affordability crunch is impacting the auto market. The average American family can’t afford to buy a new car outright, so they depend on financing to make a purchase. However, with high-interest rates, even used car purchases are becoming increasingly difficult. The solution for many people is to extend their loan term, which increases the amount of interest they pay over time.

So, what can be done to mitigate the effects of the current state of the used car market, especially with high interest rates on auto loans? Here are some options to consider:

  1. Consider alternative financing options – if you’re in the market for a car, don’t limit yourself to traditional financing options like auto loans. Consider other options like personal loans or credit cards with low-interest rates to finance the purchase of your car.
  2. Buy a car with a lower price point – instead of buying a brand new car or a high-end used car, consider purchasing a car with a lower price point. While it may not have all the bells and whistles, it can still get you from point A to point B and help you save on interest rates.
  3. Increase your down payment – if you can afford it, consider increasing your down payment. This can help lower your monthly payments and reduce the overall amount of interest you’ll pay over the life of the loan.
  4. Refinance your auto loan – if you’ve already purchased a car with a high-interest rate, consider refinancing your auto loan. This can help you secure a lower interest rate and lower your monthly payments.
  5. Wait it out – if you’re not in a rush to buy a car, it may be worth waiting until the market stabilizes. With the current state of the used car market, prices are likely to fluctuate, and waiting a few months could help you save a lot of money.

In conclusion, the current state of the used car market is not ideal for buyers, with high interest rates on auto loans and a shortage of supply driving up prices. However, there are still ways to navigate this market and find a car that fits your budget. By considering alternative financing options, purchasing a car with a lower price point, increasing your down payment, refinancing your auto loan, or waiting it out, you can make a more informed decision and find the right car for your needs without breaking the bank.

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