Your old clunker is on its last leg. You know it’s only a matter of time until it dies in the driveway or, worse, leaves you stranded on the highway. The shiny chrome accents and glossy finish of a brand new vehicle beckon you. On the other hand, your practical side says that maybe a used car is the better way to go. It pays to weigh the good and bad about buying new and used before you make a final decision and head to the dealership.
According to a poll taken by people who’ve owned a car for 10 years, the decision of which car to buy is a big one that will impact you for a long time. It pays to do your research and think the options through.
The smell of new
You just can’t beat that new car smell or the way it feels to sit inside and see all of the fun gadgets in front of you. A new vehicle has a lot of appeal, which can make it a good buy.
The positive side of new
One of the best reasons to buy a new car is the manufacturer’s warranty. You’re likely to enjoy a few years of trouble-free ownership and if something does go wrong, you don’t have to pay to get it fixed. Many dealerships offer 3 years/36,000 miles while some extend it to 5 years/100,000 miles to give you added peace of mind.
The latest technology enhances your safety and offers the ultimate convenience. Imagine not having to hunt for your keys when you want to get inside or start your car. With a push-button start, you are ready to go as long as you have your keys with you. That’s just one of the advanced features that come with new models.
The ability to customize is also appealing to many car buyers. Choose your favorite paint color and wheels, even add packages with bonus features to make every drive more enjoyable. All of those add-ons make spending more time out on the highway a pleasure and not just a requirement of your day.
The lure of 0% financing may win over your practical nature. Anytime you can get a better APR or finance terms, it will put a smile on your face. It’s common to see car loans for 4 to 7 years, which often reduce your monthly payments, though it will increase the amount of money you pay in interest overall.
The negative side of new
Depreciation is one of the big reasons people choose to stay away from new cars. Drive off the lot, and your car isn’t worth what it was when you were looking at it two minutes earlier. This sounds extreme, but you lose 9% of the value of your car just be driving away from the dealership. By the first year, you’ve accumulated almost 20% in depreciation.
The cost of owning a new model doesn’t end there. Your sales tax will be higher as well, which is tied into the price of the vehicle. Because the tax is figured at a percentage, it goes up with a more expensive purchase. All but five states charge a sales tax on vehicles (Alaska, Delaware, Montana, New Hampshire, Oregon), but each state varies. To determine what percentage you would have to pay based on where you live, visit here.
Auto insurance is also often more expensive with a new vehicle because replacement cost is higher. Repairs are more expensive because OEM parts (original equipment manufacturer) are used instead of aftermarket parts.
Being practical with used
Used or pre-owned vehicles offer many advantages to appeal to your practical nature and budget. However, you want to look at both the advantages and disadvantages before you decide.
The positive side of used
One of the biggest draws towards used cars is the fact you aren’t paying for initial depreciation. Buy a car that is one year old and you already have at least a 20% less depreciation to account for than if you’d bought that same vehicle when it was new. What this means is you can purchase that stylish sedan or crossover you’ve had your eye on but couldn’t afford when it was sitting in the showroom. As a pre-owned model, it’s no longer out of your price range.
Choose a late model with low mileage or certified pre-owned and you’ll even get a warranty with your vehicle. For instance, if you buy a car that’s two or three years old and only has 40,000 miles on it with a 100,000-mile warranty, you’ll enjoy ownership for at least a few years without repairs.
A lower price tag means savings in other areas, too. If you choose to buy a less expensive used car, sales tax is cheaper and insurance is less expensive because the vehicle has a reduced value for replacement. You can find a wide range of models at a variety of price points, which means you can select a used vehicle that fits your budget, even if it’s only a few thousand.
The negative side of used
The concern for many with used vehicles is the stigma of buying a car that is ready to fall apart. You may not have a maintenance history on the vehicle or know why it was traded in. Even if the vehicle is in perfect running condition, you’ll have to start making repairs sooner than you would with a new model. Make sure you have money saved back for new tires, belts, hoses and other components that usually need replacement.
The lack of a warranty can deter many from choosing a used vehicle. If you want that peace of mind, you’ll have to purchase an extended warranty, which can cost several thousand for high-end models.
Expect to pay a higher APR on a used vehicle because of the higher level of risk. The difference between new and used for interest rates can vary from .20 to over 1%, depending on the area you live in.
Pros for new:
- Manufacturer’s warranty
- Customize your options and accessories
- It often includes the latest safety and technology features
- You may qualify for as low as 0% financing
Cons for new:
- Depreciation is greatest during the first year of ownership
- Sales tax is higher because of the higher price
- Insurance is more expensive because of the higher replacement value
Pros for used:
- You don’t pay for the bulk of depreciation if the car is older than one year
- You can purchase a high-end model which would be unaffordable if it were new
- Insurance is less expensive than if the model were new
Cons for used:
- You may not know the history of the vehicle
- You may end up with no warranty or paying for an extended warranty out of pocket
- You often pay a higher APR
So, if you’re trying to decide between a new and used vehicle, remember that no answer is perfect. Do your research to find a vehicle that fits your needs and is a good deal, whether it is new or used.