When it comes time to buy a car, one of the most frequent questions we hear are whether new or used cars are better? Many people’s knee jerk response is that used cars are a better value (lower cost than new, less depreciation, etc). While this is frequently true, it is worthwhile to fully evaluate your particular circumstances + the car you are purchasing to ensure it is the right decision.
Key considerations in your decision:
- Total cost of ownership
- Expected time to own
- Safety and Technology features
Continue reading this article as we'll discuss the advantages and disadvantages of buying a brand new or used car.
Advantages of a New car
A new car is more likely to have the latest technology, which equals better gas mileage and lower emission. You are also getting the advantage of the latest safety features available. It is also great if you are a gadget junky. American cars, in particular, are featuring new convenience and infotainment options in each model update.
Reliability is another major plus for new cars. You know exactly where the car came from, and you don’t have to worry that it wasn’t properly taken care of in the past. Brakes, tires, and other parts are also in the absolute best condition. Barring recalls you should expect to have no major repair work for the first few years you own the car. This will save you money as well as removing any concerns about having to figure out transportation options when your car is in the shop. The biggest advantage is that a new car will come along with a warranty.
Financing is usually easier with a new car. Lenders offer better interest rates on new car loans, and you need less of a down payment on the loan. I’ve also found that you can get better incentives on the purchase price of a new car when you finance through the dealer. It is still worth getting a quote from a bank as they may offer better interest rates.
Disadvantages of Buying New Cars
Depreciation, depreciation, depreciation…The most adverse aspect of buying a new car is that you lose 20-30% of the car’s value as soon as you drive off of the lot. To an extent, i think this is somewhat mitigated if you are going to drive a new car for an extended period of time (think 5-7 years minimum) since you are getting the enjoyment out of the new car. However, if you plan to buy a new car every 2-3 years, you are throwing money out the window.
Due to a steep drop in the car’s value, you could be underwater or upside down on your car loan. This means that the loan is more than the value of the car. It isn’t a major concern unless you end up in a situation where you need to sell the car, or you have an accident where the car is totaled. In these scenarios, you end up owing money to the lender without any sort of asset to offset the remaining amount. This can, of course, happen with a used car as well, but it is less likely since you don’t have a steep drop in value.
Advantages of a used car
Upfront purchase prices is the primary advantage. You can buy a better car for less money. The previous owner has covered the upfront depreciation so you likely pay closer to the amount the car is actually worth. Depending on how well the particular make/model retains volume, you may be able to resell the car for almost as much if not more than you paid it; assuming you get a good deal in the first place.
The lower purchase price makes it much more attainable to save up and pay cash for your car. This is so much better financially since you are avoiding paying all of the interest fees.
Another advantage is that depending on your car's model, and the insurance rate is quite lower as compared to a new car.
Disadvantages of Buying Used Cars
In today’s world, you can get a lot of used information about used cars from Carfax.com reports, but there can still be a lot of mystery around the actual history of the car. These reports aren’t always complete so you don’t necessarily know whether the previous owner kept up with routine maintenance or failed to disclose a major accident. You can somewhat overcome this drawback by buying a certified pre-owned car or having a trusted mechanic inspect it prior to purchase.
Even if you buy a car in perfect condition, the fact is that older cars require more maintenance work. Parts eventually wear out and have to be replaced driving up the total cost of ownership. This is one area where I think the type of car you buy makes a huge difference in impact. If you are buying something like a Chevrolet, Dodge, Ford, repairs can add up, but you likely still save money over buying a new car. This can be a drastically different scenario with luxury cars such as BMW, Mercedes, Audi. Seemingly simple repairs can quickly run into the thousands of dollars making older luxury cars a worse value.
A used car might not have the latest technologies, and it might lack in performance. This means the mileage and emissions of a used car aren't as good as new cars.
Finally, limited availability is a drawback of used cars. If you have your heart set on a particular make, model, color, etc., you're literally going on a hunt because you will have to look across a broad geographic area to find it. Fortunately, there are great tools out there like Carmax, AutoTrader, and Carvana that make the search much easier. I even have friends who bought cars on eBay!
The bottom line is that when you're purchasing a car, whether it's new or used, it's all going to come down to your personal situation. Look closely at your financial situation, safety/reliability needs, and preferred car to make the best decision for you and your family.