What’s the Difference Between Buying a New vs. Used Car?
Compare this to buying a used car, which may not be as reliable as a new one due to its age. You may need to do more repairs on a used car. These repairs are likely not covered under a warranty, as they would be with a new car. However, you do have the option of buying a certified pre-owned car. A certified pre-owned (CPO) car has been inspected and resold by the manufacturer, and it may even come with a warranty. As technology has improved, cars have become more reliable, and many models do not need repairs until they have been driven more than 100,000 miles. At that point, they may be close to 10 years old. This means that you could buy a used car that is three years old and sell it after five years without needing to do any major repairs on it. You may even be able to sell it at a price very close to what you paid for it. You can also review Consumer Reports and other unbiased, third-party reviews to choose a model that has been performing well.
Price
New cars generally cost more than used cars. To make the purchase more attractive, the dealer may also offer new car financing at a lower interest rate, which can reduce the amount of interest you pay over the life of the loan. Some dealers even offer a zero-interest loan for new cars. Although you won’t find zero-interest loans for used cars, you can still find good financing options through your local bank or credit union.
Insurance
Depending on the model, your insurance rates may be lower on a used car than on a new one. One reason is that it doesn’t cost as much to replace an older model as it does to replace a brand-new one. If you are in your early twenties and paying high insurance rates because of your age, you may be able to save money by buying and insuring a used car instead of a new one.
Technology
New cars will have the latest technology, which will mean that you may find cars with better gas mileage and lower emissions. More hybrid options are available as well, which can reduce the amount you spend on transportation each month. Plus, improved technology can make it easier to connect your smartphone, listen to music, or find your way with GPS.
Depreciation
It is important to realize that buying a car is not an investment. Cars are assets that depreciate over time. When you buy a new car, it loses value as soon as you drive it off the lot. One advantage of buying a used car is that you let someone else—the previous owner—take the biggest depreciation hit on the car. By buying a used car and maintaining it well, you may be able to recoup a great deal of your costs when it comes time to sell the car.
Which Is Right for You?
If you’re more concerned with the latest technology than you are with price, a new car may be the choice for you. And if you prefer to drive a car that’s still under warranty, a new car also makes more sense. One exception is if you choose a certified pre-owned car that has a warranty. If you prioritize a low price and good value, buying a used car may be the better bet. No matter what you decide, you should either pay cash for the car or make sure that you can afford the payments if you finance. One good rule of thumb is that you should be able to pay the car off completely within three years. If you cannot afford the payments at that rate, you most likely cannot afford the car.
The Bottom Line
Do your research, and make sure that the model you are considering has good reviews and is reliable. If you know little or nothing about cars, then you should have a trusted mechanic look over the car for you, particularly if it is used. Make sure you shop around for the best loan if you are borrowing money to purchase your car, and don’t be afraid to negotiate the best price possible for your car.
