When it comes to car buying, one of the first questions to consider is – should I buy a new car or a used car? There are a multitude of factors to think about; from how much you can afford to spend up-front, to how you’re planning to use the vehicle, to how your individual auto loan or insurance rates might be affected.
Unsure which road to car ownership is right for you? Read on for a little more insight into the pros and cons of buying a new versus a used car.
Buying New
There are plenty of pros to buying a new car. You get a nice looking vehicle that’s all but guaranteed to stay in good condition for some time and probably comes with a warranty for the first few years for even more protection. Plus, there are the extra perks of purchasing a new-to-market vehicle, such as a state-of-the-art sound system that’s compatible with all your devices, for all your listening on-the-go needs.
When it comes to auto loans, interest rates and APRs are typically better with a new car. Car companies will also often offer special auto loan rates for new model cars, so you might be able to take advantage of a special deal and save some money on your purchase of a new car. Insurance rates can be cheaper too, because new cars typically offer more up-to-date safety features and are less likely to be stolen.
At the same time, there are certainly a few downsides to buying a new car. The biggest disadvantage to purchasing a new vehicle is that, typically, it will lose 20 to 30 percent of its value in the first year alone – and much of that depreciation occurs the minute you drive it out of the new car lot.
If you’ve got your sights set on a shiny new car, then the cost of depreciation may be something you’re willing to pay. But if money is tight or you expect rising financial responsibility in the future – for example, if you’re planning to start a family or go back to school – think twice about buying new. You could easily end up with sky-high monthly auto loan payments that mean you’re effectively paying much more than the car is worth.
Buying Used
Financially speaking, there are a number of advantages to buying a used vehicle – but of course, it all depends on the vehicle in question. If you manage to find a well-maintained car without any major issues, you’ll be able to enjoy a great vehicle without the financial hit of high depreciation in a short period of time. Be sure to do your research, including checking consumer reports online and looking up the value of the car in the Kelley Blue Book, to help you pick a reliable make and model.
Another benefit of buying used is that because your overall payment is lower than a new car, you auto loan will be smaller as well – so you can pay off that debt sooner as well as spending less money in interest payments over the long-run. Borrowers with less than perfect credit will also usually find it easier to get an auto loan for a used rather than a new car.
The major downside of buying a used car is that while it might save you money up front, you could be looking at higher costs later on. The last thing you want is to purchase a used car in order to save money, and then spend three times that sum on repairs. Especially if your job depends on having a reliable form of private transportation, be cautious. You may want to choose a certified pre-owned vehicle, which has been inspected by trained mechanics and includes a warranty.
Another potential disadvantage of buying used is that it can be trickier to negotiate financing on an older vehicle. Dealership financing for new cars can sometimes offer benefits like a low interest rate or other financial incentives, which might not be available with a used vehicle. All the same, borrowing from a certified financial institution such as a bank or credit union can have its own advantages, including automatic payments and more personal service later on. Either way, do your research before selecting a lender for your auto loan – whether you opt to buy new or used.
