SANTA MONICA, Calif. –
The coronavirus pandemic is accelerating consumers’ recognition of more favorable financing terms in connection with used vehicles among other benefits of acquiring a pre-owned model instead of a new car.
That’s among the latest findings shared on Tuesday by Edmunds, which asserted that current unique market conditions due to COVID-19 could be driving more consumers out of the new market and into used vehicles.
Edmunds analysts reported that June used-vehicle finance figures and Edmunds website data indicate shifts in shopping behavior that are not usual for the used-vehicle market and could point to more typical new car shoppers entering the fray:
• Reduced interest rates. Edmunds data shows that interest rates for used vehicles dropped to the lowest level since January 2018 with the average annual percentage rate (APR) falling to 7.8% in June, compared to 8.3% in May and 8.6% a year ago.
• Bigger down payments. The average used down payment climbed to $3,167 in June, surpassing $3,000 for the first time that Edmunds has on record dating back to 2007.
• Less negative equity. Edmunds data reveals that 26.3% of used vehicle sales with a trade-in had negative equity in June, the lowest level so far in 2020.
• Increased cross-shopping of used vehicles. According to Edmunds website data, more new shoppers are cross-shopping used vehicles than before COVID-19. Edmunds also said 29% of new-vehicle shoppers between mid-May and mid-June also considered used, compared to 24% between mid-January and early March.
“More consumers are looking for value in their next car purchase due to the economic challenges of the coronavirus pandemic, so the more favorable loan conditions we’re seeing are likely a direct result of more consumers with good credit shifting into the used market,” Edmunds executive director of insights Jessica Caldwell said in a news release.
“Thanks to a shortage of new vehicle inventory, more automakers and dealers have leaned into promoting attractive certified pre-owned programs, which might be driving more typical new car shoppers into the used market,” Caldwell continued.
Edmunds data also indicated that the share of used vehicle purchases with a vehicle trade-in dropped in June to the lowest level since February 2009, which experts said could also be indicative of another trend emerging due to COVID-19: more first-time buyers.
“The fact that there are fewer people trading in a vehicle when making a car purchase could indicate that there are consumers entering the market for the first time — possibly due to concerns surrounding public transportation — which is an exciting prospect for the industry,” Caldwell said.
June Used-Car Finance Data (Averages)
|
June 2020 |
June 2019 |
June 2015 |
|
|
Term |
67.3 |
67.4 |
66.3 |
|
Monthly Payment |
$405 |
$411 |
$378 |
|
Amount Financed |
$22,337 |
$22,181 |
$20,706 |
|
APR |
7.8% |
8.6% |
7.7% |
|
Down Payment |
$3,167 |
$2,665 |
$2,217 |
Source: Edmunds