In yet another sign the new car market remains in an absurd state, new data from Lending Tree released Monday showed car buyers are going to new lengths to nab a set of wheels. Not only are buyers financing larger loan amounts for used vehicles, they're ending up in older cars compared to past years.
According to the data, the average age of a used vehicle Americans purchased in the first two quarters of 2020 hovered around 5.8 years old. Year-over-year in 2021, the age jumped to 7 years flat on average. In some metro areas, the average age of vehicles on which shoppers kicked the tires more than doubled. New Orleans, for example, ranked at the top with potential borrowers shopping 16-year-old cars on average this year. More often than not, older cars cost less, and it's clear Americans are looking to turn back the clock to land an affordable car. The next data point likely explains why.
The average amount on finance inquiries for a two-year-old vehicle jumped a whopping $5,176. Last year, those shopping financing for a two-year-old car were looking at an $18,298 loan, but today, they're looking to borrow $23,475 -- 28% more. It's a two-pronged story. As the semiconductor chip shortage continues to hit automakers hard, used cars become more attractive to the companies. GM Financial, for example, won't let lessees sell their lease to a rival company any longer. Why? They want that car back so a GM dealer can sell it themselves while new car inventories remain low. This makes used cars far more valuable to those selling them.
At the same time, car shoppers hope to land a better deal with a used car since depreciation hits new cars hard. However, with used car values increasing, the deals are few and far between. It explains inquiries for much older vehicles with far cheaper prices.
Many automakers were hopeful the second half of the year would bring a reprieve to the chip shortage, but so far, it doesn't appear that way. The same advice still stands: it's not the best time to buy a car, but if you need one, shopping around for the best deal can literally pay off.
