There’s nothing like opening a box and enjoying a brand new product – and this feeling is intensified when it comes to driving a new car off the lot. It’s got that unmistakable new smell and you get to use everything for the first time.
But is that pleasure worth the cost? After all, what’s the point of paying more when you can get a great used vehicle at a much lower price? Read on to answer the question: Is it better to buy a new or used car?
Which Is Better: A New or Used Car?
For some people, only a new car will do. But a used car may offer significant benefits where it matters: your wallet.
Here’s the bottom line on a few key factors:
Overall Cost of Ownership
A new car will come with a higher sticker price (and monthly payment), higher insurance premium, and higher sales tax – but will be more fuel-efficient and less likely to need repairs.
A used car will likely have a lower monthly payment. While the annual percentage rate (APR) may be higher than for a used car, you will likely still pay less total interest because your auto loan is smaller.
A new car shouldn’t need much work in the beginning and you’ll be fully covered if something does come up. Depending on how old it is, a used car may need frequent repairs and replacement parts, which you have to pay for out of pocket.
A new car will likely cost you more to insure simply because it’s worth more. You may be required to take out comprehensive insurance and GAP insurance for a new car. Insurance will be cheaper for a used car and you might only need basic coverage.
New cars lose value as soon as you drive them off the lot with a loss of around 20% in the first year – even more in some models. This may put you in danger of owing more on your auto loan than the car is worth (unless you were able to make a sizable downpayment). Used cars hold their value better over time.
Even if you sell your car just a year after you buy it, you’ll get much less than what you originally paid. Depending on how many miles you put on your used car and how long you have it, you might be able to sell it for only slightly less than what you bought it for.
Buying a New Car
Maybe you’re still on the fence about what’s best for you, so here’s a handy summary to help you decide: Is it better to buy a new or used car?
Advantages of Buying a New Car
- All the latest features: A new car means you’ll get technology and gadgets that aren’t available in older models. Plus, you’ll be able to customize some elements.
- Comprehensive warranty: New cars are less likely to break down but if it does happen, you’ll likely be 100% covered for the first few years at least.
- Lower APR: Auto loans for new cars may come with lower rates and other benefits not offered when buying an older car.
- More fuel-efficient: Due to advances in technology and a brand new engine, one place you’ll likely save on money is at the gas pump!
- No hidden history: You don’t need to worry about whether the car has been damaged in an accident.
Disadvantages of Buying a New Car
- Higher sticker price: All those bells and whistles don’t come cheap, so you can expect to pay more for a brand new vehicle.
- Higher insurance costs: Because the car is worth more, it will cost you more to insure it.
- Faster depreciation: Your new car might lose 20% of its value in the first year alone, putting you in danger of owing more on your loan than your car is worth.
Buying a Used Car
The main downside to buying a used car is simply that: it’s been used by someone else. But this means you might get the chance to buy a much better car than what you could afford if you bought a brand new car. And it might only be one or two years old!
Advantages of Buying a Used Car
- Lower sticker price: It’s possible to find a reliable used for under $5,000, making it a great choice for people with smaller budgets.
- Lower insurance: Premiums on a used car will likely be lower and you may be able to skip add-ons that are required for new vehicles.
- Better trade-in value: You’ll likely be able to get enough for your car to cover the balance on your auto loan – and possibly make a profit.
- Less worry: If your car already has a few minor scratches and scrapes, you’re not going to feel so concerned driving around town and parking on the street.
Disadvantages of Buying a Used Car
- Limited or no warranty: Some dealerships may offer a warranty, but you’ll be on your own if you’re buying from a private seller.
- More repairs: Breakdowns tend to increase as a car gets older, and parts often need to be replaced due to normal wear and tear.
- Fewer lenders for older cars: Some auto loans are available only to newer cars, so you might need to shop around if you want to buy a much older vehicle.
Next Steps: Financing Your New or Used Car
Once you’ve made up your mind about whether it’s better to buy a new or used car, it’s time to think about how you’re going to pay for it.
An auto loan is a convenient, low-cost option – and you might not need a downpayment. Just be sure to find the best rates and terms to suit your budget.