Should you buy a new car or a used car?
You’re in the market to replace the vehicle you’re driving now and trying to decide between new or used.
Automakers would like for you to buy new every time. And if you like new with all the latest whiz-bang features, then you’re their kind of customer. Or, maybe you’re the budget conscious type who doesn’t necessarily have to have the latest in greatest technology in your vehicles. Perhaps you shop carefully, looking for the best value in a vehicle for your money.
The case for buying a new car
New and used have their advantages and disadvantages. Ultimately, the answer to which is best is: it depends.
But here’s the biggest factor buyers should consider in a buying decision – depreciation. That’s a real value killer, according to Carfax. Unless you put a bunch of money down on the car in cash or trade, you are upside down on the auto loan (meaning you owe more than the car is worth) as soon as you drive off the lot.
A vehicle’s value drops 10 percent when it leaves the lot. The car depreciates another 10 percent by the end of the first year, Carfax shows. Some cars can lose as much as 50 percent of their value. “On average, a new car will lose 60 percent of its total value over the first five years of its life,” Carfax notes.
You could end up in a bind if an accident totals the vehicle. Insurance pays off only the current value of the car. You are responsible for the rest of the loan.
“Guaranteed Auto Protection” insurance covers the difference should the vehicle be a total loss, according to Edmunds. It adds to your insurance premiums, but it may be worth the expense if you believe in being safe rather than sorry.
Another benefit to buying new is the incentives and special interest rates manufacturers offer to entice buyers. One is the zero-percent financing. But few can meet the credit score needed to qualify for that rate, according to Edmunds. It’s simply a way of getting potential buyers in the door.
There’s no absolute rule-of-thumb on what credit score you need to be offered zero-percent financing. It depends on the manufacturer. Automakers have lengthened term for this financing from 60 months to 72 months.
But even if you qualify for that rate, it may not be the best deal, Edmunds shows. With cash rebates and other incentives, the overall monthly payment may be less, even with paying interest. So be sure to do your research when buying new and considering a deal with zero-percent financing. U.S. News & World Report has a resource showing the interest rates as well as incentives automakers offer each month.
The case for buying a used car
If you’re looking to get around the depreciation issue as much as possible, buying a slightly used vehicle is that path. Basically, with a used vehicle, someone else has already paid for a good bit of depreciation, according to Autotrader. A three-year-old car that has depreciated by 60 percent could mean a good car at a great price
Unlike the days of old, used cars are more dependable now. “It’s not uncommon for some cars to deliver more than 100,000 miles before needing major repairs,” NerdWallet notes.
Car insurance tends to be cheaper for used cars as well. As NerdWallet points out, a car that is worth less costs less to insure if you buy the full coverage.
But unlike with new cars, you don’t get the same kinds of warranties. Dealers do offer extended warranties on vehicles, particularly certified pre-owned. A car that is a year, or two or three years old may still have time left on its factory warranty.
According to Autotrader, to get the certification dealers put vehicles through “extensive, manufacturer-required, multi-point inspections and repairs, as needed, to restore all functions back to factory settings.” These vehicles may have 12,000 to 36,000 miles on them, but they are essentially new in every other way. They do come with premium pricing because of the certification, however, just not nearly what you’d pay for a new car.
Buying a vehicle that has just come off a lease is another good option. While the vehicles don’t go through the certified pre-owned tag, dealers still put them through inspections of their own and may offer warranties, notes Autotrader.
Finally, there’s the “it’s just transportation” approach. A working car with a lot of miles and years on it can be had for surprisingly little money, sometimes less than $1,000. You won’t turn heads at the traffic light, but you’ll be saving a whole lot of money every month. Depending on your situation and attitude toward cars, this could be an approach that works for you.
When it comes buying a new or used vehicle, doing your research on the front end is key. Even if you’ve decided on one option or the other, running comparisons between the two to see the different costs would be beneficial. You just never know, you may see the cost differences and decide a two-year-old car is the best way to go.