If you're in the market for a new set of wheels, you're probably wondering whether you should buy a new or used car. For most, buying a car is one of the biggest purchases a person will ever make.
And unfortunately, all too many Americans sink themselves into debt by taking out a car loan they just can't pay off.
When it comes to buying a new vs pre-owned car, there just isn't a one-size-fits-all answer. There is no right and wrong - it completely depends on what your needs are as a car buyer. Are you financially stable? Do you have time to take your car to the shop for repairs? Is the aesthetic appeal of your car a major factor?
There are just some of the many questions you should ask yourself before driving a new or used car off the dealer's lot. Whether you're looking at new or used cars, the vehicle you end up with should be:
- Safe. Hands down, the most important aspect of a car should be safety. Even if a car looks great and is available at an affordable price, it's not worthwhile if it has faulty breaks that might put you in the hospital. For the sake of your wellbeing - as well as the wellbeing of whoever else might be riding with you - only buy a car that can promise safe travels.
- Reliable. A low down payment is nice, but a car that requires regular trips to the mechanic adds up fast. If your car doesn't function reliably, it may break down at an inopportune moment. Or worse, if it's a really severe mechanical issue, repairs may end up costing you more than the car itself.
- Affordable. It's better to figure out how much you can spend on a car before you make a vehicle purchase. When calculating how much you can realistically pay in loans, remember to account for the unexpected. Always leave some wiggle room in your budget when buying a new or used car.
Let's get to the heart of the issue. It's all about the money, right? If money isn't a concern, then it's not a hard decision. Buy the exact car you want, whether that's a specific used car like a classic '72 Camaro or a brand new Hyundai Genesis.
But if you're like most people, finances will be the main factor driving your decision. When deciding whether to buy new or used, there are plenty of things to keep in mind. Down payments, depreciation, warranties, and maintenance fees are just some of the factors to consider when deciding whether to buy new or pre-owned.
Oftentimes, the down payment is enough to dissuade someone from buying new. However, it all depends on your credit.
If you have great credit, you might be able to buy a brand new car with just a small down payment - or maybe even no down payment at all. If a dealership is offering incentives for buying a new car like rebates, discounts, or 0% APR, the cost of a down payment may be partially or entirely covered by the manufacturer.
When it comes to used cars, a down payment usually makes up the bulk of the transaction. It's a larger up-front cost, but the total cost of a pre-owned car is much less than a new car. New cars tend to start around $15,000 - and these are the most basic models a manufacturer has to offers - whereas you can find used cars for less than 5k.
Generally speaking, you can buy a nicer used vehicle model for the same cost as a new, more basic model.
On the other hand, there are certain feelings attached to buying new cars vs. used cars that tips the scale towards new for some shoppers. That new car smell, being the car's original owner, and the fact that - in our society - your car communicates a lot about your economic status and class.
Don't forget, trading in your old car will help mitigate the cost of your down payment. If you have built up some equity with your trade-in, selling your old car to the dealer might make the price of a new car a lot more manageable. Or it could mean buying a used car for only half the asking price.
A car loses value with the passing of time. A lot of value. In fact, your new car loses anywhere between 20-30% of it's resale value the moment you drive it off the lot.
So let's say you buy a shiny new car for $30,000. If it loses 30% of its value immediately, meaning you're essentially losing $9,000 that you will never get back. Every year, the car's value will continue to depreciate, until the car is worth a fraction of the cost you paid for it.
So let's say it's time to sell the car you bought for about $30,000. 8 years later, you'll only receive a fraction for the amount you paid for it. Let's estimate around $7,000, if it's in decent shape.
But is that really such a bad deal? It depends. Let's say your interest rate was low and you paid the car off after 5 years of driving. Since it's a relatively new car that runs well, you get another 5 years out of it, payment free. After 10 years of use, paying $30,000 and getting $7,000 back - $23,000 spent total - is a fantastic deal considering the many years of use.
In fact, it evens out to $2,300 a year for the 10 years of use. Not bad considering a regularly driven pre-owned vehicle will hold up for 10 years.
Generally, auto manufacturers keep new cars under warranty for about 5 years. That means if you have any sort of mechanical issues, the manufacturer will pick up the cost of repair. Hyundai Assurance offers a 10-year/10,000 mile warranty for all new Hyundais.
A manufacturer's warranty can potentially save you thousands of dollars in repair costs. Just make sure to find out what's covered in the warranty before drawing assumptions.
Used cars can be a bit tricky when it come to warranties. As a precaution, always get a car history report before buying a used car. At the very least, take the vehicle to your mechanic before committing to a pre-owned vehicle without a history report.
The smart used car shopped will either:
- Take a pre-owned vehicle to a mechanic for a thorough inspection before making the purchase
- Buy from a dealership that offers warranties on used vehicles
CERTIFIED PRE-OWNED WARRANTY
One of the greatest benefits of buying a new car is the warranty. Unless you're looking at certified pre-owned vehicles. CPO vehicles are somewhat of a middle ground between new and used vehicles.
On one hand, the car is used and has plenty of miles on it. On the other hand, it has the dealership's seal of approval on it. Certified pre-owned vehicles are under warranty from the dealership, and some dealers offer the option of buying an extended warranty. Having an issue with the certified pre-owned you just drove off the lot?
Unlike buying used from a non-authorized retailer - on a site like craigslist or ebay - buying a certified pre-owned car means the dealer is going to pick up the tab on any mechanical failures beyond your control. If the CPO vehicle isn't performing like-new, the dealer is obligated to do something about it. Learn more about the difference between certified pre-owned and used cars.
The price of a used car might look great at first glance, but it's usually not the true cost. The price to keep a pre-owned vehicle running can add up very quickly.
It can't be stressed enough: do your research before purchasing a pre-owned vehicle. Hidden maintenance needs can make buying a new car seem like the better alternative. Used cars sold with major mechanical issues can cost thousands to repair, sometimes exceeding the cost of the car itself.
That's why buying pre-owned vehicles from a certified dealership is usually a safer option.
A new car should not give you much trouble in the way of maintenance. Especially in the modern day, new cars are built with much sturdier materials. Typically, newer cars run significantly longer than cars manufactured from previous decades.
And to boot, many dealerships will service a new vehicle for free up to a year or so.
SUMMARY: PROS AND CONS OF BUYING A NEW VS. USED CAR
When it comes to car shopping, there just isn't one concrete answer for everyone. Whether you're looking at buying a new vs. used car or even buying vs. leasing a car, the best decision depends on your budget and lifestyle.
Let's quickly review the pros and cons of buying a new vs. used car below:
- The sticker price of used cars are lower than new cars
- Depreciation rapidly decreases the resale value of a new car
- New cars are more reliable than used cars and are usually sold with a warranty from the manufacturer
- Pre-owned cars tend to need more repairs which can add up
- Good credit can get you a lower down payment on a new car, and/or a low APR