Now that you have a better understanding whether buying or leasing a vehicle is the best option for you, it is now time to tackle the second major question in any car buying experience: should I buy a new or used vehicle?
The answer to this question ultimately revolves around your personal preferences, your budget, and an understanding of the risks and rewards of each type of vehicle.
Should I Buy a New or Used Car?
There are several aspects to consider when buying a vehicle that is either new or used. Cars that are three or four years old can be three-quarters to half the price of an average new car, which may seem attractive to some cost-conscious buyers. However, there are risks involved with buying a used car that aren’t necessarily inherent to purchasing a new vehicle. How did the previous owner treat the vehicle? Will it require major repairs soon?
Here are some of the pros and cons of buying a new versus used vehicle.
Pros of a new car:
- Manufacturer’s warranty that helps cover the cost of major repairs.
- Latest safety, comfort, convenience features.
- No surprises from previous use like unattended maintenance issues or prior accident damage.
Cons of a new car:
- Higher cost.
- Higher auto insurance expense.
- Fast depreciation (buyers lose 20-40% when you drive off the lot).
Benefits of a used car:
- Lower cost.
- Lower insurance premium.
- Less depreciation.
- Can buy a higher model car for less money.
Drawbacks of a used car:
- Higher maintenance and repair.
- Lack of new car warranty.
- Less recent safety/comfort amenities.
Beyond the above considerations and mere price point difference, there are other issues one should keep in mind when deciding between a new or used vehicle.
Other New Versus Used Vehicle Considerations
Residual Value
It is important in either scenario to determine how the car will hold its value over several years. Not all cars depreciate at the same rate and when you are ready to sell, you may see a significant difference. For instance, two vehicles may have a sale price of $20,000 when you take ownership, but if one is then worth $10,000 and the other $7,000 five years later, then the second was $3,000 more expensive because of depreciation.
Nearly New Vehicles
There are often cars that dealerships use for demo cars or short-term transportation. These vehicles have never had an official owner although they may have a few thousand miles on the odometer. The benefit to these cars is they are often marked down significantly by the dealership and are still covered by factory warranty.
Trade-Ins
When you go to purchase a new car, you may have a previous car to trade-in. In most cases, it is both the easiest and the best deal to trade-in at the same place you’re purchasing your new vehicle. However, it is important to negotiate these as two separate deals, as opposed to allowing the dealer to lump them into one. First, negotiate the price of the new car irrespective of your trade-in, then attack the price for the trade-in.
Time of Year
There are a wide variety of incentives, rebates, and price cuts associated with both new and used cars. However, savvy car shoppers know that the time of year plays a role in how beneficial these incentives may be. Typically, the best times to purchase a car are towards the end of December, or between July and October. At the end of the year, dealers are competing for Christmas shoppers. Late summer to early fall means that dealerships are making room for next year’s models. Both can be a prime time to purchase and get a great deal on either new or used vehicles.
Vehicle History Reports
When buying a used car, it is always imperative to purchase a vehicle history report. The most common is a Carfax report, which can provide the number of previous owners, the odometer readings at checkups, as well as major crash incidents.
Extended Warranty
Some dealerships are known to heavily pressure potential buyers into purchasing an extended warranty. These warranties typically come in two types: one from the manufacturer, and others from independent companies. While independent companies may be less expensive, you need to be careful to review what is covered under each contract.
While many sources are against the option of extended warranties as they often cost much more than they are worth, there are times when extended warranties can provide peace of mind. If you are one who despises surprise expenses or rarely tuck away extra cash for times of emergencies, an extended warranty may be a good option to consider. On the other hand, if you budget for some repairs and can handle the shock if such an expense arises, it usually makes more sense to forgo the warranty.
Considering these points can assist in determining the car that best fits your needs.
Next, we cover auto financing.
