Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.
A perfect storm has been brewing in the used car market. Demand for pre-owned cars currently far outstrips supply, and that’s driving prices through the roof, especially for compact and more fuel-efficient vehicles. This time last year a three-year-old Prius sold for about $11,700. Today a three-year-old Prius would cost you $17,750 — a $6,050 jump. WSB auto expert Adam Goldfein and I agree that these are the reasons for the skyrocketing price of a used ride:
What’s the best way to navigate the current auto market?
If you’re looking to get out of a lease, find out what a dealer would pay you for the car. The residual value of your car is the pre-determined “end-of-lease” value placed on the car in your contract. Thanks to market factors described above, your vehicle may be worth more than its residual value. Let’s say your car has a residual value of $15,000, but Kelly Blue Book determines that it’s worth $17,500 on the open market. Chances are you can find a dealer to pay you more than the residual value.
The most economical way to buy a car is to buy something three or four years old and drive it for at least 10 years. However, if you are frustrated by high used car prices, leasing might be a better option. Because residual values are being set higher, due to the surge in used car prices, lease payments should come down. Here is a list of what leasing deals looked like in April.
Used pickups and SUVs have dropped slightly in value from a year ago as consumers have been looking for more fuel-efficiency. But be careful before buying the gas-guzzler of your dreams. While gas prices are moderating — we could see gas under $3.25 a gallon before the end of the summer – over the next several years, prices are probably headed up.
– By Wes Moss, for Atlanta Bargain Hunter