New and Used Car Prices to Increase

The prices of new and used cars this year will jump by 6 and 1.8 percent, respectively, compared to 2011, according to the National Automobile Dealers Association (NADA) Guide.

One of the reasons for the jump in price for new cars is due to an increasing demand, as people want to buy more cars since the economy began to recover last year. Generous incentives form automakers and low interest rates helped the rise in demand.

"Interest rates on new car loans will remain historically low in 2012 and 2013, due in part to policy decisions by the Federal Reserve Board to keep rates low and the U.S. economy growing," chief economist of the NADA Paul Taylor said. "As a result, affordable credit will be widely available in with more automaker finance companies offering low-interest and interest-free loans for up to 60 months."

NADA Used Car Guide predicts used vehicle prices will increase by 1.8 percent, and as much as 8 percent for pickups and SUVs, by the end of the year. The price is expected to peak in April and May, according to a seasonally adjusted basis. The used car’s price started to rise last year because of tight supply in the recession since 2008.

Despite the increase in price, analysts suggest it is beneficial to buy vehicles this year, due to high trade-in values and loosening credit.

"Consumers shopping for either a new or used vehicle will benefit this year from higher trade-in values along with loosening credit," said Jonathan Banks, executive automotive analyst for the NADA Used Car Guide, “For dealers, reliance on customer trade-ins will increase as they strive to meet the challenges of growing demand in a supply-constrained market.”