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There Are Trade-Offs to Lower Used-Car Prices

NEW YORK (TheStreet) -- Those looking for a great deal on a used car this month have good reason to smile. Prices are down 2% so far this year, thanks to dealers' overabundance of cars and trucks.

Edmunds.com, which tracks used car prices, says auto shoppers can expect to see lower prices on used vehicles throughout the year.

But that should lead to a ripple effect through the market that could raise prices on new and leased vehicles.

Many car shoppers might not realize how much the new- and used-car markets feed off each other, says Philip Reed, a consumer advice editor at Edmunds. The boom in new car leases, for example, is leading to a higher number of lease returns, which adds to the growing inventory of used cars, forcing their prices down.

That, in turn, should lead to more expensive new vehicle leases, as the residual value of a leased car (defined as the value of a car or truck at the end of a lease) leads to higher monthly payments to make up the difference, Reed says.

The ripples don't stop there. You can expect:

More used cars at dealerships. Used-vehicle shoppers will have more cars to choose from, thanks to the glut of new vehicles on dealer lots.

More favorable used-car deals. Edmunds says automakers have sweetened the pot on certified pre-owned auto deals. Car makers have lowered interest rate charges to qualified buyers and are rolling out enhanced service plans to move more cars and trucks off auto dealer lots and showrooms.

Lower car trade-in-values. One sour note: Edmunds says the glut of used-car inventories leads to lower values on used car deals. That, in turn, decreases the value of the vehicle you're looking to trade in to a dealer when you buy a newer car or truck.

Some vehicles are seeing bigger price declines than others. Big crossover models such as the GMC Acadia and Chevrolet Traverse are seeing the most significant price drops (down more than 8% for the year, Edmunds reports).

Even used luxury car prices are going down. The BMW 3 Series is seeing 5.3% price declines so far this year for used cars.

So, yes, its a great time to be shopping for a used car. But not so much if you're looking to lease or get a good deal on the trade-in value of your old vehicle.

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