There are many things to consider when it comes time to buy a car. One of the first things to decide is whether you want to buy a new or used vehicle. There was a time when many people would thumb their noses at purchasing a used car, with the top concern usually being that they would inherit someone else’s used car issues. However, as cars have become ever more dependable and we’ve seen an influx of “nearly-new” and Certified Pre-Owned cars on the market, more people are taking a serious look at how buying a used car can save money in the long run. If budget is not an issue, this question may not be applicable. New technology and safety features combined with the prestige and peace of mind associated with driving a brand-new car may be top factors in your purchasing decision. For the rest of us, it’s well worth it to do at least some basic research on whether buying new or used will be the best decision for your circumstances.
Benefits and Drawbacks of New Cars
The allure of a shiny, brand-new car is tempting, even for those whose budgets would be better served on a less-expensive option. The perception is that these cars will be safer, more dependable and require less repairs and maintenance for the first few years. However, outside of the initial higher sticker price, there are other costs to consider. Let’s take a look at the good and the bad of purchasing a new car.
New Car Advantages
- A new car almost always comes with a warranty, usually for at least 3 years and 36,000 miles, giving you peace of mind and extra assurance that you won’t be stuck with any hefty out-of-pocket repair bills for a while.
- New cars have the latest technology, from robust safety features to enhanced convenience options. If you’re wanting to have features like lane assist, blind spot monitor, Bluetooth audio streaming and integrations such as Apple’s CarPlay, you will have an easier time finding what you want in a new vehicle. A word of caution, though – technology and safety packages can increase the sticker price of a vehicle by thousands of dollars.
- In many cases, lenders may offer better interest rates on new cars, which could decrease your interest paid over the time of the loan. This, combined with dealer and manufacturer incentives only found on new cars, could counteract part of the higher price tag.
- It’s easier to find just the car you want when shopping for a new car. You can build the vehicle you want with the desired packages and options without searching far and wide, like you might have to when looking for a specific used car. Also, since new cars are considered to be in perfect condition, you won’t have to consult a mechanic as many people do when purchasing a used car.
New Car Disadvantages
- The greatest disadvantage to purchasing a new car is the extraordinary cost of depreciation, which begins the minute you drive a new car off the lot. In seconds, your car’s value depreciates as much as 20%. Your new car could lose 30% of its value by the end of the first year, depending on mileage, wear and tear and maintenance upkeep, according to NerdWallet.com. Most people don’t notice this huge expense until they go to trade in or sell the vehicle. Depreciation also causes a secondary issue. Depending on the amount of time the loan is financed for, you can easily end up owing more on your car than it’s worth – or being “underwater” on your loan, as it’s known. If your car is wrecked and considered a total loss, unless you’ve purchased GAP insurance, you could be out of pocket thousands of dollars. A tip for new-car buyers: if you drive the car until the wheels fall off, depreciation will have no effect on you. To see a clearer picture, check out Kelley Blue Book’s online tool that calculates cost of ownership on a vehicle for 5 years.
- If you’re comparing apples to apples, a new car will generally be much more expensive than a 2-year-old version of the same car. The higher price tag means you’ll be paying more cash right then or financing a larger amount for the vehicle. You have to decide whether paying thousands more is worth it.
- There are higher ancillary costs with owning a new car. They’re more expensive to insure, sales tax will be higher and since you have to buy them from a dealer, you’re likely paying partly for the high overhead required to run a modern franchise dealership.
For some, just having that new car smell makes the final difference!
Benefits and Drawbacks of Used Cars
Buying a used car doesn’t carry with it the stigma that it used to. With the rise of used car megadealers and certified pre-owned options, gone are the days of only being able to purchase directly from an owner or ending up in a “slimy” used car dealer’s office worrying if you’ve just purchased an unreliable clunker. Carfax and AutoCheck reports can alert you to any accidents or major flaws, so there’s some added peace of mind usually only associated with new cars. Purchasing a late-model used car can get you some of the manufacturer’s warranty, as well. You’re still purchasing a used car, though, and there are some drawbacks.
Used Car Advantages
A cheaper price tag leaves you with money in the bank or the ability to purchase a better or higher-end vehicle. If you really want those heated leather seats or that premium sound system, you might be able to afford that in a used car. Maybe you’d like to upgrade from a regular sedan to a luxury one. Buying used could make the difference between purchasing a Nissan or Infiniti. If you’re willing to take on a car with higher miles or a couple of small marks on it, you can save thousands of dollars. You’ll also save the interest on the higher loan should you finance the vehicle.
- On a used car, someone else has taken the major depreciation hit instead of you. You can save thousands (or even tens of thousands!) purchasing a vehicle whose value has depreciated 50% over the course of 3 years before you buy it.
- There are more resources for purchasing used cars than ever. Sites like cargurus.com not only provide aggregated listings of used cars (no more classified section!) but they let you know whether the car is a good deal or bad deal in your market through complex algorithms that provide near real-time information updates and information. Many dealers include a Carfax or AutoCheck report with every used vehicle, making it easy to research vehicle history. Some dealers now sell used cars entirely online, meaning you never have to set foot into a dealership – something many people dread. There are even dealers that specialize in particular categories of used cars, such as only late-model vehicles under 50,000 miles.
- If you purchase a used car, you’re going to pay less to insure it. If you aren’t carrying a loan on the car, you can even drop some coverage and save even more.
Used Car Disadvantages
- At the end of the day, it’s still a used car, and there’s no way to have a true accounting of its history. Although services like Carfax are more accurate than ever, they aren’t 100% fool-proof and can have errors. There are extra miles and wear and tear on the vehicle that were all racked up before you were in the picture, which can leave you with a sense of uncertainty on a really large purchase.
- Financing rates on used cars are generally higher, which will increase your interest costs over the term of your loan if you financed. While this shouldn’t be considerable, it could tack on about $1000 on to the total cost of your loan, depending on your credit.
- It’s just not new. There’s just something special about driving a brand new car off the lot and used cars will never be able to capture that feeling.
New or Used Car: What Will it Be?
There is no right or wrong answer on whether to purchase a new car or used car. It’s a personal decision best made with your financial and personal needs in mind. Arm yourself with research like what was discussed in this article and in the recommended reading below and you should be able to make a sound decision on your best bet for your next car!
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