Unless you live in the middle of a major metropolitan area, few of us these days can get by without having a car. And, even those of us who do live in city centers with access to public transportation may still choose to own a car for one reason or another. It’s no secret that the cost to own and operate a car can take a major bite out of your monthly budget, so it’s worth it to compare the merits of buying a new car vs used car to see what works best for you.
Pros and Cons of Buying a Used Car
Pros
- Less expensive
- Less depreciation
- Lower insurance costs
- Lower renewal fees
- Best bang for your buck
Cons
- No warranty
- More maintenance
- Higher interest rates
Pros and Cons of Buying a New Car
Pros
- Better interest rates
- Warranty
- Reliability
- Fuel efficiency
Cons
- Higher initial cost (price tag and taxes)
- Value depreciates faster
- Higher insurance rates
- Higher registration fees
When buying a car, be it new or used, it’s important to do your research to ensure you’re spending your money wisely and that you’re aware of all future costs that you may encounter. A pre-owned car may save you money up front, but could end up costing you more down the road. On the other hand, a new car will set you back substantially at first and likely require a monthly payment, but the money you put into now could end up saving you big bucks years down the line.
Pros of Buying a Used Car
Less Expensive
Perhaps the number one reason people choose to purchase a used car vs a new car is the price difference. A second-hand car can be significantly cheaper upfront than a brand new car and this usually means thousands of dollars in savings. However, this is dependent on the type of car you purchase and how old the car is. A higher-end model used car that’s only a few years old can end up costing more than a basic, no-frills, brand new vehicle.
Less Depreciation
The next biggest benefit of purchasing a used vehicle has to do with car depreciation. Depreciation measures how much value your car loses over a certain amount of time, and this happens much faster for a new car as opposed to a used car. Experts say that a new car can lose 20% of its value the minute you drive it off the lot, which means if you were to sell the car the very next day, you’d be losing 20% of your investment. A used car, on the other hand, retains much more of its value over time, so if you choose to sell it a year or two down the line, you’ll recoup more of your original investment. So, if you’re unsure of how long you’ll want to keep your next vehicle, certified pre-owned cars might be a better investment.
Lower Insurance Costs
Car insurance rates are based on many things, but one of the biggest factors is how much collision and comprehensive coverage your policy provides (the amount your plan pays to repair your car in the event of damage or a crash). These amounts will be higher for a new car because the parts are more expensive to replace and you’ll almost always want to include this. However, you may choose to drop collision and comprehensive coverage altogether if you’re driving an older car because you could end up saving money.
If the amount you’re paying each month for the premium and what your deductible would be is more than the amount the insurance company values your car at, you’re better off just pocketing that money and using it toward a new car instead of trying to repair your totaled one. However, it’s always worth comparing quotes and reviewing the policies to get a better understanding of the types of car insurance that are included in each plan.
Lower Renewal Fees
Although it will vary by where you live, most states charge less in renewal registration fees for older cars than they do for new ones. However, after a certain number of years, the fees tend to even out and you may only see a difference of $10 to $30 in the price.
Best Bang for Your Buck
For many people, buying a used car – even one that’s only a few years old – will often be the best value for your money. Cars that have been on the market for at least a few years will have more of a track record on their dependability and overall user satisfaction. You can compare similar makes and models to see which ones get stronger reviews from customers and professional car review sites. This way, you’ll know more about what you’re getting yourself into with a used car and will have a better idea of its long-term value.
Cons of Buying a Used Car
No Warranty
Depending on whom you buy your used car from, it may not come with any kind of warranty coverage. That said, if you purchase a certified pre-owned vehicle from a car dealer, it will likely come with some kind of warranty but this typically won’t be as comprehensive as the original manufacturer’s warranty (it is possible to buy a pre-owned car that still has its original warranty, but these will vary and are typically good for the first 36,000 miles or three years). You may also have the option to purchase an extended warranty, but this will be an added expense.
More Maintenance
Because most new car prices include the cost of a warranty, almost all of the surprise repairs you’ll see in the first few years will be covered under this. However, an old car won’t have such protections and you may end up paying out of pocket for a lot of repairs as well as regular maintenance. You can mitigate this in part by thoroughly researching the history of the vehicle to ensure it hasn’t been in any major crashes and that all regular maintenance has been performed on it to date.
Higher Interest Rates
Because new car dealers are always looking for extra incentives to attract customers, they’ll often offer very low interest rates for financing a new car. However, when you buy a used car, this won’t be the case. It’s not uncommon to see interest rates two to three points higher when taking out a car loan for a used vehicle.
Pros of Buying a New Car
Better Interest Rates
Taking advantage of the typically lower interest rate on an auto loan when buying new vs used car can end up saving you thousands of dollars over the life of the loan. So, if you know exactly what type of car you want and you’re fairly certain you’ll keep it for many years down the line, securing a low interest rate right from the beginning could mean you’ll get a better overall value by buying new.
Warranty
One of the biggest incentives for a car buyer considering a brand new vehicle is the warranty package that is often included in the sticker price. These warranties will differ from one manufacturer to another, but many will include comprehensive coverage that includes roadside assistance, labor, and replacement of any defective parts (known as bumper-to-bumper coverage), and may even include regularly scheduled maintenance. These warranties last from three to five years or 36,000 to 50,000 miles, whichever comes first.
Reliability
When you buy a new car, you know there’s been no previous owner, so there’s no danger of hidden problems or a history of poor maintenance. It takes the guesswork out of car buying since you won’t have to research sellers or prior models. And, if there is a concern with a component of the vehicle, your warranty should cover these costs 100%.
Fuel Efficiency
Each year, car manufacturers use lighter-weight materials and streamlined four- and six-cylinder engines to increase the fuel efficiency in their vehicles because they know that saving on fuel costs is a huge selling factor to potential buyers. This is true whether you’re in the market for a sedan or a pickup truck. Some providers may even provide car insurance discounts for a car with ultra-low fuel usage or an electric vehicle.
Cons of Buying a New Car
Higher Initial Cost (Price tag and Taxes)
The most obvious downside of buying a new car is the higher price which results in a larger car payment. A new car that’s only two or three years older than a used model will cost you thousands of dollars more. Additionally, when comparing car prices, always factor in any applicable taxes and fees that may not be included in the sticker price.
Value Depreciates Faster
When you buy a car from a dealer, the second you close the deal and drive it off the lot it can lose as much as 20% of its value immediately. This means that if you purchased a car for $20,000 and sold it the very next day, you would only receive $16,000 for it. This can be a huge factor in your overall value if you only plan on keeping the car for one or two years.
Higher Insurance Rates
A large part of your insurance costs is based on how much it will cost to repair or replace your car if it’s damaged. Therefore, newer cars also bring with them higher insurance premiums because they simply cost more to fix. You may also incur higher insurance rates if you opt for gap insurance.
While this type of insurance isn’t required when you buy a new vehicle, many people choose to add it to their base policy for added protection. Guaranteed auto protection (GAP) insurance kicks in if your new car is totaled and reimburses the policyholder for the difference between the value of the car and what you still owe on it.
Higher Registration Fees
Newer cars often cost more to register than older cars. A big factor in the cost of registration is based on your car’s total value, so a brand new car will likely have a higher value than a used car. The difference in cost typically goes away after about three years.
Purchasing a New Car vs a Used Car
If you’re looking to buy a new or used car, know that vehicle prices continue to rise for most consumers. Because of this, anyone who’s entering the car market needs to weigh their options carefully and consider what kind of investment they’re able to make upfront, and how their purchase will pay off in the long run.
This is true whether you’ve got your eye on the latest model or you’re content with a pre-owned vehicle. The good news is, there’s often financing available so you can buy a car – new or used – in good condition with the safety features you want.
