Buying A New Vs. Used Car: Everything You Need To Know
Sidney Richardson9-Minute Read
November 10, 2021
So, you need a car. Choosing your next vehicle is a big deal – this will likely be your ride for the foreseeable future, so you obviously want to make sure it will be reliable and will serve you well. That said, should you buy a car brand-new or used? There are plenty of benefits to both – which option is right for you will ultimately depend on your unique needs and what you’re comfortable doing financially.
Wondering which choice to make? Let’s go over some of the factors to consider when buying a car and what advantages and disadvantages there are to buying a vehicle new or used.
Factors To Consider When Buying A Car
If you’re trying to decide between purchasing a car new or used, you may be wondering what factors you should even be weighing to make your decision. Here are a few things you might want to consider.
- Down payment: If you’re getting an auto loan, consider the size of the down payment you can make. If you’re buying a used car, a 10% down payment might work just fine – but with a brand-new car, you’ll likely want to make a larger down payment. Since new cars depreciate in value very quickly, you can actually end up paying more for your car than it’s worth if you don’t make a large enough down payment initially.
- Credit score: If you are financing your vehicle with a loan, you’ll want to keep your credit score in mind, too. Higher credit scores can secure buyers better interest rates on car loans. Buying a new car might prove difficult for you if you can’t qualify for a good interest rate.
- Interest rate: Though new cars will almost always cost much more than used vehicles, the interest rates on used car loans tend to be higher to make up for it.
- Car insurance: You will also want to evaluate different car insurance options and their respective rates. Used cars are often cheaper to insure than brand-new ones.
- Maintenance, repairs, gas and oil changes: Buying a car new or used will also impact what you can expect to pay each year for repairs, maintenance and even gas. New cars are generally better on gas mileage and will require less maintenance and repairs since they are freshly built and have fewer miles on them. Older cars may be in worse condition and might require major repairs after a while.
Get the right home loan for you.
Pros And Cons Of Buying A New Vs. Used Car
There are many pros and cons of new and used vehicles. Let’s dig into the advantages and disadvantages of both options to help you make an informed choice.
Advantages Of Buying A New Car
Simply put, new cars are often more reliable than used cars. They’re made with the newest features and have little to no miles on their record, so you can expect these vehicles to last a long time. A brand-new car doesn’t have any sort of vehicle history, so you also don’t have to worry about inheriting issues from a former owner.
Full Warranty Protection
Unlike most used cars, brand-new vehicles are often under full warranty protection. A full warranty may last anywhere from 60 days to 3 years (or potentially longer) and will likely cover many issues that could come up with the car, minus regular wear and tear.
Cheaper Financing Options
Dealerships may be more willing to provide beneficial financing options to new car buyers. New vehicles, while more expensive than used ones, often come with lower interest rates for auto loans – and sometimes with no interest at all if the buyer has excellent credit.
Advanced Features And Technology
One of the best benefits of buying a new car is right in the name – it’s new. New cars are often equipped with the most advanced features and technology in safety and entertainment. A brand-new car will have all the latest and greatest elements that you’d otherwise have to wait a few years to find in a used vehicle.
In general, newer cars also tend to be more fuel-efficient than vehicles of the past – meaning you might spend less on gas (and be a little friendlier to the environment) by driving a brand-new car. According to the U.S. Environmental Protection Agency (EPA), vehicles in 2019 averaged 24.9 miles per gallon of fuel – a considerable increase from 2010, when the average was around 17.5 mpg.
Disadvantages Of Buying A New Car
Expensive Purchasing Price
While buying a brand-new vehicle will land you all the fancy new bells and whistles you’ve been dreaming of, it doesn’t come for free. The upfront costs of buying a new car are far greater than those of purchasing one used. According to data from Kelley Blue Book, the average price of a new car in June 2021 was $42,258 – compared to the average price of a used vehicle, which was around $25,000.
Even though interest rates are typically lower on newer cars than on used, if you are financing with an auto loan, you still may be paying more interest over the course of your loan than you would on a used car.
As you may know, cars depreciate in value very rapidly. In fact, a new car loses a great deal of its value the second you drive it off the lot for the first time. According to ExperianTM, new cars drop around 20% in value during the first year of ownership. Depreciation does gradually slow over time, however, meaning that used cars actually depreciate slower than new ones.
While the cost of car insurance depends on many factors, including your insurance company and driving history, new cars tend to be more expensive to insure in general than used vehicles because they can be more expensive to repair and replace. You can expect your monthly insurance premium to increase if you choose to purchase a new car.
Only Buy With Franchised Dealers
When you buy a new car, you have to get it from a franchised car dealer. When the dealership is the only place you can get a car, it can be very difficult to negotiate on a price or any other aspect of the deal. With a used car, on the other hand, you can buy from almost anywhere – whether that’s a dealership or even just a person you know.
Advantages Of Buying A Used Car
Cheaper Purchasing Price
In general, buying a used car is much cheaper than buying a new car. Since cars depreciate so quickly in value, cars that have seen a few years of use cost drastically less than they would if they were sold new off the lot.
As we mentioned earlier, cars depreciate the most in value during the first few years of ownership. If you’re buying an older car, it’s probably depreciating in value at a much slower rate. If you bought a car that’s 8 or 9 years old, chances are you can resell it for a similar price when you’re ready, depending on the conditions and mileage. The same can’t be said for a new car, which might fall from being worth $35,000 to $28,000 or less within a single year.
Ability To Afford More Amenities And Luxuries
When you think of buying a used car, you might be thinking of some piece of junk manufactured a decade ago – but that’s definitely not the case with most used vehicles. A car that’s just a year old with only a few hundred miles on it is technically a used car, too. If you don’t want to pay full price for a brand-new car that will lose significant value as soon as you’re handed the keys, you might instead consider a car that’s already a year or two old.
By buying a “like-new” car or even a luxury vehicle with only a few hundred or thousand miles on it, you can save a lot of money that otherwise would have gone essentially to waste on a new vehicle.
Cheaper Insurance Rates
Used cars are also cheaper to insure than new vehicles. Premiums are determined by a handful of factors, so your insurance premium might look different than someone else’s – but in general, your auto insurance rate will drop a small percentage for each year older a vehicle might be. A 6-year-old car will almost always be less expensive to insure than a brand-new one.
Disadvantages Of Buying A Used Car
Higher Financing Options
While used cars are almost always less expensive than new ones, auto loan interest rates for used cars tend to be higher to make up for it. According to a Bankrate study, for a 36-month loan term, the average car loan interest rate for a new car was 3.84% – whereas for a used car, it was 4.31%. While a single percentage point may not seem like much, the interest can add up over time.
For tips and tricks to eliminate this extra burden from your monthly budget, check out our guide to paying off your car loan early.
Unknown Car History
When you buy a used car, you can get access to the vehicle’s history and reports on any damage it may have endured – but you’ll never truly know the extent of a car’s history and potential problems. A used vehicle might have unseen damage or unreported events on its record that you will never know about until you take it home, which makes buying a used car – especially an older car – more of a risk than purchasing one brand-new.
According to J.D. Power, most vehicles last about 200,000 miles. The more miles on a car, the cheaper it will likely be – but this will also mean the car is more at risk for large problems and repairs. Cars with a lot of miles on them are typically more prone to problems that come with the wear and tear of use and age.
Some vehicles can last well beyond the 200,000-mile mark with proper upkeep and regular maintenance. Still, you should keep in mind that higher mileage typically means the vehicle in question will have a shorter lifespan than one fresh from the dealership.
No Warranty Coverage
Used cars typically have little or no warranty coverage, depending on where and who you purchase them from. That means you’ll likely be paying for any issues or repairs that come up out of pocket – which can be very expensive, depending on what needs to be fixed.
Other Car Options To Keep In Mind
Choosing between buying a car new or used can be difficult, but those aren’t your only two options. Let’s look at some other car options that might be available to you. Leasing Leasing a car is sort of like renting a car instead of owning it. Rather than making payments over time to eventually own a vehicle, you would make payments just to drive a vehicle for a period of time – typically up to 36 months. The benefit of this is that you would be renting essentially a brand-new car for much cheaper than you would pay to own one. A lease is a great idea for someone who wants to drive a newer or nicer car and doesn’t have to drive too far for work or other reasons. Pros Of Leasing
- Typically, you’ll have lower monthly payments.
- You can drive a new car every few years.
- You’ll have better warranty protection, so you don’t have to worry about car repairs.
Cons Of Leasing
- You don’t own the vehicle and will not ever own it unless you buy out the lease.
- Leases often have strict mileage limits.
- Leases often require a stable monthly income.
Certified Preowned Vehicles A certified preowned vehicle is a type of used car that is like-new and comes with some benefits that other used cars may lack. These cars are usually no older than 5 years and have to be under a certain mileage limit, typically 80,000 or less. They are certified by their original manufacturer to be in perfect working condition based on a thorough inspection, which is a process many other used cars don’t go through.Certified preowned cars are a great option for buyers who want a like-new car but may not be willing to deal with the hefty price tag and might not feel comfortable buying a regular used car. Certified preowned cars go through intensive inspection to make sure they are in good condition and have few miles on them. They may also be backed by a warranty, something usually uncommon with other used cars.
The Bottom Line: Should I Buy A New Or Used Car?
Buying a car is a huge decision – after all, it’s what gets you everywhere you need to go. When looking for your next vehicle, think about your priorities and what you are comfortable paying for. Though it will always be more expensive, if driving a new car is important to you and you want to hold onto it for a long time, it might be worth the investment. If you’re more focused on saving money, a used car might be a better option for you. Neither option is the right or wrong one, it all depends on your preferences and priorities.
Get the right home loan for you.
Viewing 1 - 3 of 3
What Should Your Credit Score Be To Purchase A Car?
Let’s take a look at what your credit score should be to purchase a car, and how your credit score affects what you end up paying.
Lease Vs. Buy A Car: What’s The Best Option For You?
If you’re in the market for a car, you may wonder whether you should lease or buy it. Let’s take a closer look at the differences between leasing and buying so you can make an informed decision.