Carvana is an auto dealer that specializes in delivering cars right to your door.
They streamline the process of buying a car and remove some of the aspects that make it annoying or lengthy.
When shopping at Carvana, you may notice that the prices tend to be a bit more expensive than what you might find at other dealers.
Why Is Carvana So Expensive? (10 Reasons)
Cars tend to start at around $14,000 at Carvana but can quickly go up to $50,000 and higher.
Despite selling used cars, Carvana tends to have higher prices than dealerships.
The fact that you don’t have to haggle with dealers at Carvana, the expenses the company takes on to deliver vehicles, and the region in which you live all factor into the higher prices.
Let’s look at these factors in more detail.
1. Regional Prices
Carvana sometimes has cars that are more expensive in one region than in another.
That’s because Carvana bases its prices on regional prices.
It has to do with supply and demand.
Certain cars are more in demand in some regions than others.
For example, cars with great gas mileage and reduced carbon emissions are in demand in the Pacific area.
Cars that are able to pull heavy loads tend to be in demand in the south.
Smaller cars are often in demand in cities.
Because there’s more demand for those cars in specific areas, it means that Carvana has to supply those areas with those cars.
Since Carvana can only get its hands on so many cars in a particular area, they have a reduced supply.
They’ll work hard to fill their inventory, but they’re not always going to have as many cars as there is a demand for.
As such, they raise prices on the cars in demand in those regions.
This mitigates the demand since it means some buyers won’t be able to afford the high prices.
Certain regions might also have higher tax rates on vehicle purchases.
That can also influence the price.
You may find that certain cars are expensive at Carvana because they’re in high demand in the region in which you live.
2. Little Competition
When Carvana first started operations, there was nothing like it.
The only way to get a car was to find a private seller or head to the dealership.
Carvana changed the rules.
It allowed you to buy online and have cars shipped right to your home.
At its start, Carvana had relatively cheap prices.
They had to keep prices low to compete with dealerships.
Once the company started to build a reputation and more people used it, it was able to raise its prices to what the company wanted them to be originally.
There are still very few competitors of Carvana.
While dealerships remain, they both operate in different aspects of the market.
Dealerships can sell used and new cars while Carvana tends to sell used cars.
Dealerships also allow buyers to try and haggle down the price while Carvana doesn’t.
At Carvana, the price you see is the price you pay.
Outside of dealerships, there are only a handful of other car sellers that operate strictly online.
The lack of competition means that Carvana can typically sell at whatever price it wants to.
When there is competition, all the competitors are trying to get buyers to choose them over their counterparts.
The best way to do that is to lower the price.
Buyers usually always choose the business that has the lowest price.
Since Carvana doesn’t have any pressure to lower its prices, it keeps them high.
Should other competing sellers enter the market that offer the same sort of service, then Carvana may need to start lowering its prices to hold onto its customers.
Until then, Carvana remains expensive because there isn’t any pressure on them to lower their prices.
3. Car Inventory Costs
Carvana has tons of different cars for sale.
When you look online, you can scroll for pages to see the types of cars that they sell.
Having that amount of inventory doesn’t come cheap.
Carvana isn’t going to make any money if they don’t have cars for sale.
Because of that, they have to keep buying cars to add to their inventory.
Cars aren’t always cheap to procure, either.
The kind of cars that Carvana buys also aren’t usually cheap.
They tend to buy newer used cars.
Those cars are going to be more expensive than really old cars because they normally don’t have that many miles on them.
As such, owners or sellers are going to try to sell their cars to Carvana at a high price.
Carvana may be able to negotiate a little bit, but they’re ultimately looking to buy cars to fill their inventories.
They can only say no a few times before things start to look dire for them.
As such, they often spend a lot of money on getting new cars.
This means that the company has a lot of costs associated with running its business.
Before it makes a profit, it takes on the debt of buying the cars needed for inventory.
It needs to resell the cars at a higher price to make back the cost and earn a profit.
Dealerships don’t have to worry about this.
They get their cars directly from the manufacturer.
They also get used cars from trade-ins which helps them save money on purchases.
Since Carvana sometimes has to pay top-dollar to get their hands on a prized car, they sometimes need to price their cars high to cover those costs.
4. High-Interest Financing
Buying a car from Carvana is only half the expense.
When you go to buy a car from Carvana, you usually need financing of some sort.
Most people don’t have $30,000 or more available to buy a car in cash.
They need to take out a loan.
The problem with taking out a loan is that it can sometimes make your payments far more expensive than they should be.
It all comes down to the interest rate.
Carvana’s financing typically has higher interest rates than other loan options may.
The good thing about Carvana is that you don’t need to choose their financing to buy your car.
You can always get a loan from your bank or from a financing company.
They can sometimes offer a rate that’s lower than what Carvana offers.
To get a loan through those agencies, however, you need to have good credit.
If you don’t have good credit, then your only option might be to use Carvana’s financing.
That means you’re stuck with paying a high price on the car and paying a high-interest rate.
Your expensive car has become even more expensive.
Carvana has high interest rates because it helps them generate more profit.
They’re able to use those funds to buy more cars, advertise, or simply invest in themselves.
Dealerships may also have financing options.
Depending on the down payment that you provide, the price of the car, and your credit history, you may be able to get a low interest rate from the dealership.
As a result, the car, even if it was expensive, is going to be a bit less expensive to pay off compared to a car purchased at Carvana because of its lower interest rate.
Carvana is expensive because of the high interest rates associated with its financing.
Carvana is also expensive because it’s extremely transparent with its car’s history.
Because Carvana deals in used cars, it understands that buyers want to know the history of the vehicle.
Few people want to buy a car that has been exposed to flooding, for example.
Because of this, Carvana goes to significant efforts to show the vehicle’s complete history.
You’re able to see when the car was manufactured, how many years it was on the road, and any accidents that it was in.
If there’s anything to report about the vehicle, then you’ll see it.
This helps buyers make the best decision for their budgets.
The kind of transparency that Carvana offers makes its cars expensive for a few reasons.
The first is that it requires Carvana to do a bit of work.
Agents need to dig into the history and compile it for buyers to read.
That costs money which they need to make up for.
Secondly, Carvana is aware that being transparent comes with risks.
Buyers may be less likely to buy a car from Carvana if the one that they want doesn’t have a great history.
They might lose out on money by being transparent.
To reduce that risk, they sell at a higher price.
Finally, transparency helps build their reputation of being a reputable car dealer.
They’re not out to surprise anyone or sell a dud to anyone unknowingly.
All the research is there for their buyers to see.
Not all dealerships do this with their used cars.
They might not provide an extensive report on any of their pre-owned cars.
As such, it’s a bit of a gamble for buyers.
Carvana offers that security—but at a higher price.
Buyers may be more willing to pay a bit more to Carvana for that peace of mind.
Carvana is expensive because its devotion to transparency makes its operations a bit more expensive.
6. 7-Day Money-Back Guarantee
Carvana does something unique which is also why its cars tend to be on the more expensive side.
When you buy a car from Carvana, you can test it for a week.
If you find that the car doesn’t work for your family or believe it has defects, then you can return it to Carvana and get your money back.
Carvana has a 7-day money-back guarantee.
If you don’t love the car, then you’re able to send it back to them.
This is extremely costly for Carvana to offer and do.
If someone decides that they don’t like the car, then it costs Carvana money to pick the car up.
Not only do they have to refund the buyer’s money, but they also have to pay travel expenses.
They need to pay their driver to get to the location, load up the car, then bring it back.
That results in fuel costs and time.
If the buyer is far from a Carvana warehouse, then it’s even more expensive for Carvana to pick it up.
The costs become more expensive after that because they need to detail the car prior to another sale.
All these expenses end up making business very expensive for Carvana.
To help cover those costs, they put an expensive price tag on their cars.
Dealerships have the benefit of missing out on some of those costs.
They tend to let buyers test drive the car before buying it.
Even if the buyer chooses to walk away, the only thing it costs the dealership is a bit of fuel money and time.
Some dealerships might also offer a money-back guarantee, but you can be sure that the dealers are going to attempt to convince the customer to test drive the car before buying it.
That way, there’s less of a chance of the buyer asking for their money back after buying the car.
Carvana doesn’t have that luxury since people typically aren’t able to try the car until after buying it.
The guarantee adds a bit more risk to the business, so they charge higher prices to reduce the risk.
7. Speedy Car Delivery
One of the things that Carvana is best known for is its delivery of cars.
A big truck pulls up in front of the buyer’s home with their new car on it.
The driver delivers the car into their driveway, hands over the keys, and answers any questions that the buyer might have.
Carvana is typically able to get your car to your address within five to 15 days.
The length of time largely depends on how far you are from your car’s location.
The further away you are, the longer it’s going to take Carvana to reach you.
If you happen to live close to a Carvana warehouse, then you’ll get your car in only a few days.
Carvana tries to get your car to you fast as possible.
That sort of commitment takes money.
They need to maintain their delivery trucks to ensure they don’t break down.
They need to pay their drivers.
They also need to pay any taxes or fees that are associated with certain highways.
Because it costs them some money to deliver cars as fast as they do to your home, they make up that cost through expensive prices.
8. Newer Used Cars
Carvana is expensive because they sell used cars that aren’t that old.
Carvana tries to buy cars that are only five to seven years old.
That means they have a very small pool from which they can buy.
To ensure they get the sale, they usually have to pay top-dollar.
It’s also important to keep in mind that newer cars sell at higher prices than very old cars.
Newer cars tend to have fewer miles and less wear and tear on them.
There’s more demand for them, so the price is higher.
You can sometimes score a deal on a cheap old car at a dealership.
That isn’t the case at Carvana.
9. Reconditioning Costs
Carvana is expensive because of the costs associated with reconditioning.
You don’t buy cars as Carvana found them.
The company has a mechanic who looks over the car and refurbishes it.
They repair the parts that need repairing.
This means Carvana adds more expenses to its budget.
They take on more costs to ensure they’re selling a great car.
Since it’s more expensive for them, they sell their cars at more expensive prices to make up for the costs.
A final reason Carvana is expensive is that you’re paying for convenience.
Carvana takes a lot of the stress out of car shopping.
You don’t have to deal with annoying dealers and you don’t have to worry about haggling.
You simply find a car that you like, then you buy it.
Since the process is more convenient, Carvana charges you a convenience fee.
Carvana is a simplified car dealership that removes a lot of the back-and-forth that’s common in car buying.
Thanks to this convenience and the expenses that Carvana takes on, as a result, its prices tend to be higher than dealerships.