Think pre-owned.
Those are handy rules to keep in mind if you’re in the market for a car this year.
Auto analysts agree that in the current market, the smartest used-car buys for your budget will be compact vehicles.
Why is that the case? It’s because market dynamics are converging to create favorable conditions. Supply meets demand.
Here’s Where the Bargains Are
Why opt for a used car? Because the instant you drive a brand-new car off the lot it begins losing value rapidly. By contrast, a pre-owned car will retain a resale price much closer to what you spent on it.
Also, used vehicles are more dependable than ever.
Leasing surged earlier in the decade, peaking in 2014. Millions of cars leased for two or three years around that period are now appearing on the used-car market. Your target should be a used vehicle in solid shape with relatively low miles at a fair price. Consumer Reports suggests shopping for cars that are 2 or 3 years old.
Why choose a small car? Because that’s exactly where the best bargains lie.
Generally, used-car prices have climbed in recent years as many buyers have access to easy financing. Yet low gasoline costs are convincing more of those buyers to choose used SUVs, trucks or larger cars — not smaller models.
As a result, values for used compact and subcompact cars have been dropping, according to Edmunds.
Bigger used vehicles have gotten pricier. Used luxury SUVs jumped 12.5% year over year, per Edmunds’ latest Used Vehicle Market Report. Prices for large traditional SUVs rose 12.3%; compact trucks climbed 10.2%; and full-size cars increased 8.5%.
Midsize used cars have largely held steady.
But smaller cars haven’t followed that trend.
“The best values for used-car buyers are concentrated in the subcompact segment, where prices are down an average of 6.3% year over year,” Edmunds states. “Compact cars (down 2% year over year) also deliver solid value for secondhand buyers.”
You can save money by avoiding the herd.
“If you’re shopping for a small used vehicle, now is an excellent time to buy,” said Ivan Drury, a senior analyst at Edmunds. “Prices for these models have fallen because demand has shifted toward used trucks and SUVs.”
It’s harder to predict what this means if you’re trying to trade in your current vehicle. That’s worth noting given that a record share of car purchasers are underwater on their auto loans, with about 32% of people who trade in owing more than the car’s worth.
Ultimately, your present car’s mileage and condition will play the biggest role in its trade-in value. For an estimate of your vehicle’s trade-in worth, check Kelley Blue Book, Edmunds or CARFAX.
Compacts and Subcompacts: How Do They Differ?
That all sounds promising, you might say. But what exactly qualifies as a compact or a subcompact?
Luckily, there are precise definitions for these classes. They’re based on the combined passenger and cargo volume of the vehicle.
A subcompact offers 85 to 99 cubic feet of passenger and cargo space. A compact provides 100 to 109 cubic feet. A midsize has 110 to 119 cubic feet. A full-size car has 120 cubic feet or more.
Popular compact cars: Ford Focus, Honda Civic, Toyota Corolla, Chevrolet Cruze, Mazda3, Volkswagen Jetta, Toyota Prius c, Kia Rio, Hyundai Accent, Nissan Versa and Volkswagen Golf.
Popular subcompact cars: Ford Fiesta, Mazda2, Chevy Spark.
Vehicles even smaller than subcompacts — such as the Smart FourTwo — are labeled “minicompacts” or “microcars.”
Knowledge Pays Off
There’s obviously much more to buying a used car than picking its size. At Savinly, we’ve compiled useful tips and guides to help — see our resources for more direction.
The bottom line: Knowledge is power. The more you know, the better decisions you’ll make.
Thankfully, younger buyers embrace that idea. Another Edmunds study found that tech-savvy millennials tend to be well-informed shoppers because they rely heavily on smartphones for research while shopping.
Sites like Kelley Blue Book, J.D. Power and U.S. News & World Report can help you narrow down makes and models that fit your needs.
Or you can pay a small fee — about $6.95 a month — for a Consumer Reports subscription to access its rigorous used-car evaluations.
After you’ve targeted a particular vehicle, obtain a free CARFAX report to review its history.
Also consider checking certified pre owned car deals and research expected car resale value to make a smarter purchase.
Good luck with your car hunt. And remember: Think small.
Your Turn: What’s the best or worst used car you’ve ever owned?
Alex Harper, a staff writer at Savinly, has purchased five cars in his life. None were bought new.
