Buying a Used Car: Spend Your Tax Refund More Wisely
Is that tax-refund check burning a hole in your pocket? If you have been thinking about buying a used car, receiving that kickback of cash from your overpayment to Uncle Sam will probably encourage you to finally pull the trigger and buy that used car you've been dreaming about.
For many of us, a tax refund is like finding money in the street. Putting that windfall into a "new" used car that you need -- and will eventually buy anyway -- makes a lot of sense.
But hold the phone! If this year's used-car market follows historic pricing trends, sticking that refund check into your savings account and waiting for summer to buy could save you hundreds of dollars. At least, that's the advice of the experts at Atlanta-based Black Book, a collector of used-car sales data.
Nearly all industry experts predicted that used-car prices would fall in 2014, and that remains the forecast. Because nicer weather historically brings out more used-car buyers, as well as tax-season refunds that motivate people to buy, March and April almost always see an uptick in demand and consequently a spike in used-car prices.
Experts at the National Automobile Dealers Association (NADA) believe March was the peak of used-car prices in 2014. From the beginning of April through the end of the year, prices should fall. NADA forecasts that the biggest drop will be a market average of 2.5 percent to 3 percent during the months of April through June.
That means a used car that costs $15,000 today may only cost $14,550 in July. That's a savings of $450! On a $10,000 car, the savings would be as much as $300.
Although Black Book predicts that used-car prices will remain fairly strong in April, it agrees that prices will drop significantly this year and especially from April into July.
This is particularly true for shoppers of cars in some of the most popular segments, says Black Book.
Where Prices Are Expected to Fall
Roughly 80 percent of all used cars on dealer lots come from auctions. Crunching the numbers, Black Book looked at average auction prices from the end of April into July of 2013, revealing some pretty substantial savings in several of the most popular used-car segments. Lower prices at auction translate into lower prices on the dealer lots.
According to Black Book, if this year's average auction prices follow a similar path to 2013, this is what we can expect the savings to be for some of the more popular used-car segments:
- Entry Midsize Car: $634 or 5.9 percent
- Full-Size Car: $543 or 4.2 percent
- Full-Size Crossover: $760 or 3.6 percent
- Upper Midsize Car: $385 or 3.5 percent
- Compact Car: $311 or 3.4 percent
What It Means to You
Yes, all of these forecasts are averages and past-performance-based, but even if the prices this year don't enjoy as significant of a spring-to-summer drop as years past, they will most likely fall to some extent. A spike or fall in gasoline prices may chase demand from one segment to another, but overall, buying a used car will probably be cheaper in the summer than it is now.