What are the Pros and Cons of Buying a New vs. Used Car
Are you looking to buy a car? As the owner of BuyCarBlog, I've written and researched several articles about the topic. With so many options, it's hard to know whether you should buy new or used. Here, I'll help you weigh the pros and cons of both so that you can decide which makes the most financial sense for you.
I am frugal, but understand that the honest answer depends on your preference. However, there are no absolutes, so if you are ready to find the best route for you.
Plus, I'll help you save some money in the long run – whether through depreciation or something else!
Buying a New vs. Used Car
When buying a car, think about whether you want a new car or a used one.
The financial sense behind buying a new vs. used car is often one of the most significant factors in determining which option is best for someone's particular situation.
The monthly payment will be based on the purchase price of the vehicle. With regards to buying a used car, you can purchase one for less money upfront, as well as avoid the rapid depreciation that new cars experience once they're driven off the lot.
On the other hand, newer models may be equipped with more technological features than their pre-owned counterparts. You should ask yourself if you are the type of person who MUST have the latest thing or if you are willing to forego the allure of the shiny object with something more fiscally responsible.
Ultimately, taking time to research your options can ensure that you find the best deal available and eventually make an informed decision when deciding between getting a new or used vehicle.
The Pros of Purchasing a Brand New Car
As mentioned above, when buying a car, the ultimate decision depends on an individual's needs, wants and lifestyle. When considering a purchase, several benefits of buying a new car make it hard to resist.
Reliability and Warranties: A primary benefit of buying a new car is the assurance that you are investing in one that's reliable. While used cars may also be reliable, they may come with unpredictable wear and tear issues. New vehicles come with an original factory warranty of 36 months. This warranty coverage ensures all major parts are covered, eliminating any associated repair costs if something goes wrong within the warranty period.
Latest Advanced Technologies and Better Gas Mileage: When purchasing a new vehicle, you can also take advantage of safety technology such as anti-lock brakes, blind spot alert systems, airbags, and even cameras to assist in reversing safely. Furthermore, you'll like to save at the fuel pump with newer gas-powered or hybrid vehicles. Fuel efficiency is better with new models.
Better for Long-Term Ownership: From a financial sense, you will generally save money purchasing a new car since it won't come with any hidden repair costs like those found in used vehicles due to undiscovered mechanical issues. Additionally, your depreciation rate will be significantly lower since new cars tend to hold onto their value better. On the other hand, vehicles purchased from second-hand dealerships or private sellers may reveal their vehicle history reports that basic maintenance needs like oil changes and tire rotations should have been noticed or included.
The Cons of Purchasing a Brand New Car
When buying a new or used car, it is important to consider the cones of a new car. Some of the major potential drawbacks to buying a brand-new car are linked to financial sense and come down to one premium price you will have to pay: depreciation.
25% Depreciation: A car's value begins decreasing as soon as it leaves the showroom, with some estimates showing that in the first year alone, a car can depreciate up to 25%. That's one reason why buying used may make more financial sense.
Quirks and Repair Costs: Another disadvantage of new cars is that replacement parts are more expensive. For example, auto body repair costs are significantly higher if something wrong happens. In addition, taxes and fees for buying a newer vehicle may be substantially higher than used models. Finally, brand-new cars, especially new models, have little ownership history and real-world miles, making them difficult to assess the potential for recall or manufacturing defects which adds a potential risk for new car buyers.
Here are some potential drawbacks to buying a brand-new car:
Depreciation of up to 25% in the first year.
Taxes, auto insurance costs, and fees for buying a newer vehicle may be significantly higher than those for individuals who buy an older model.
Little ownership history makes them difficult to assess before purchase.
The Pros of Purchasing a Used Car
When it comes to making financial sense, buying a used car is often the wiser decision. Plenty of 2 to 3-year-old vehicles are reliable and comfortable for years to come. I typically go this route to save hundreds of dollars unless you are 100% set to purchase brand new.
By doing so, you can save quite a lot of money. A reliable second-hand vehicle might be a very smart purchase in the long run.
One of the biggest reasons to buy a used car is that it stands up well against depreciation – when you buy a new one, the car's value begins to decrease significantly once you leave the dealership. Unless you purchase something exotic or scarce that would increase in value as time passes, buying used is often more reasonable than new.
Used cars can sometimes come with warranties that give buyers peace of mind. This is especially true for certified pre-owned (CPO) cars, trucks, or SUVs.
Frequently used car buyers will be offered an extended warranty should anything arise in the months after purchase. Many dealers have provided various perks along with the sale of their pre-owned vehicles, such as free oil changes and tire rotations for an added year after purchase, to build customer loyalty and ensure satisfaction with their product. All these benefits drive down costs compared to those found in new cars.
Financial experts from Ramsey Solutions stated, "If you bought a car tomorrow for $20,000 and then sold it three years from now for $12,000, that means your car lost 40% of its value during the three years you owned it. That's car depreciation in a nutshell."
The Cons of Purchasing a Used Car
Buying a used car can be an excellent option for saving money compared to purchasing a brand-new one. However, some downsides should be carefully considered when choosing either option. Although you may save money on buying a used vehicle, it may only sometimes make the most financial sense in the long run.
Multiple Owners and No Warranties: One of the disadvantages of buying a used car is that it typically has numerous previous owners. Because of depreciation, you may be unable to recoup what you paid for if you decide to resell it. Unlike new cars, which can have five-year warranties or extendable service plans, used cars generally come with shorter warranties or none.
For example, out-of-pocket costs for repairs without a powertrain warranty can be in the thousands of dollars.
You will have to do your homework on True Market Value to ensure you are not overpaying for a used car.
Unforeseen Major Repairs: If used vehicles require any repairs or maintenance, they will often come with a much bigger bill than expected with new cars due to mileage and age-related wear and tear.
Finally, there is usually no way of knowing what shape it was before your own and if any hidden damage exists without proper pre-purchase inspection from an expert mechanic. However, as long as it does not exceed the value of your car, it should make sense to have it repaired.
Making Sense of the Financials
So what should you buy? According to AutoRemarketing.com, the data suggests that trucks and SUVs, especially Jeeps and Toyotas, hold their value the most. Unfortunately, luxury vehicles depreciate the most.
Understanding Money on Depreciation
Depreciation is the most significant financial factor when deciding between a new and a used vehicle. A new car experiences the biggest depreciation as soon as you drive it off, regardless of the make, model, or price tag. By opting for a used car, you can avoid this major hit to your wallet and recoup some money when you decide to sell later.
Typically 5-year-old vehicles have experienced most of their depreciation and can be a very affordable option as long as there isn't any excessive wear.
On the other hand, purchasing a used vehicle means you have to consider any necessary repairs or maintenance costs throughout your ownership that may be more frequent than when buying a new car. Additionally, newer cars are more dependable and come with fewer breakdowns since they have more up-to-date engineering and technology features incorporated than their older counterparts.
Making a financial decision regarding buying a car can be tricky.
In general, buying new carries the advantage of knowing that you are the first owner and have a full manufacturer's warranty on your car.
Here are Some Rules to Follow to Buy New:
Discounts and Incentives: If a manufacturer gives massive incentives to move inventory, then it might be worth buying new.
Factory Warranty: If you need the assurance of a manufacturer warranty, then buying a new one might be an option.
Ownership: If you plan to keep the car for 8-10 years, then buying a new one might make sense.
Limited Edition: If the vehicle is a limited run or edition, it might make sense to purchase it as it might appreciate.
However, depending on the make and model of your choice, this also likely includes a significant depreciation in its value as soon as you drive it off the lot – something which can add up to thousands of dollars wasted over the years it takes to pay off a new car loan.
Some vehicles carry meager maintenance costs and surprisingly good quality, which may not be found in newly manufactured models. Conversely, buying used may offer little peace of mind regarding full coverage with a manufacturer's warranty.
Still, the depreciation that occurs just after purchasing is typically low or non-existent for second owners – allowing for more savings over time during loan payments. Additionally, searching for well-maintained cars can offer an opportunity to find hidden gems within unexpected niches.
Here are Some Rules to Follow to Buy Used:
Ownership: Since depreciation is on your side, you can keep your vehicle as long or as short as needed since most of the value has already depreciated.
Savvy with Money: If you are financially responsible and want to squeeze more value for your dollar, then buying a used car is often the better route. (Unless there are massive incentives for a new vehicle)
First-Time Buyer: If you are a new driver, purchasing a used car is better, as insurance rates and repairs will be less. Consumer Reports reports how first-time car buyers can get a fair deal.
Planning to Modify Vehicle: If you plan to modify or customize your vehicle, a used car is better since you will not void the limited warranty or there is no warranty. Plus, the money you save can be put toward ongoing costs for your aftermarket modifications.
Final Thoughts: What's Right for You?
If you need help answering whether it is better to buy or lease, click the link to read that article and learn more about lease deals, lease terms, and lease contracts.
It comes down to what will best fit your individual needs and lifestyle. If you don't mind taking on a little extra financial risk because you want the latest model with all its bells and whistles, a new car could be right for you. On the other hand, if you're looking to save money in the short term or don't want your car's value to depreciate faster than necessary, a used car is probably the smarter financial decision.
Ultimately, it's essential to be realistic about your finances and weigh up all of the pros and cons before making any final car-buying decisions.