Buying a car is a huge decision. Perhaps the biggest debate you are having when it comes to car buying is, "Should I buy a new or used car?".
Many people keep their vehicles for anywhere from five to ten years, so it’s definitely a long-term commitment. You want to make sure you’re getting a good deal, but considering how much time many people spend in their cars, you also want something you’ll enjoy.
In this article, we’ll lay out some of the benefits of each and help you decide which is right for you as you save for your car!
Benefits of buying a new car
When you’re buying your next car, it can be tempting to buy new, and for good reasons. There are several perks that come with buying a new car. Here are some of the benefits of buying a new vs used car.
Better gas mileage
If you’re looking for fuel efficiency in your next vehicle, then you might want to buy a new car. Gas mileage has been steadily improving over time, with new cars generally offering the most miles per gallon. This could be appealing to drivers who spend a lot of time on the road or who are concerned about the environmental impact of their vehicle.
According to Car and Driver, vehicles today are expected to last about 200,000 miles — 300,000 if you’re driving an electric vehicle. When you buy a new car without any miles on it yet, you can expect that it’s going to last a lot longer than a car with many miles. If you’re looking for something with longevity, you might be better off buying new.
Car manufacturers and dealerships make the most money on new vehicles, so they try to incentivize buyers to go in that direction. To help push you to buy a new car, dealerships often offer better financing for new cars.
New car loans come with lower interest rates, and some dealers even offer 0% financing when you buy new. Over the course of a five-year loan, a few percent can make the difference of thousands of dollars.
Car manufacturers are continually coming out with new technology to help make vehicles safer and more comfortable. When you buy a car that’s more than a few years old, you miss out on many of these features. Buying new is the best way to guarantee your vehicle has the most up-to-date technology.
No matter what type of car you buy, you can expect that something will eventually go wrong with it. Something in your car will break down or need to be replaced — it’s inevitable. But when you buy a new car, you’ll typically get a warranty that covers many of the things that could go wrong. With a used car, you may not have access to a warranty, or it may not cover as much.
Benefits of buying a used car
While buying new seems like the obvious choice for some buyers, there are plenty of advantages to opting for a used car instead.
It won’t come as a surprise that buying a used car means you’ll typically pay a lower price. Often you can buy a car that’s just a couple of years old for significantly less than a brand new version of the same car.
If you’re paying in cash, a cheaper car will save you thousands of dollars that you could spend on something else. And if you’re financing, then you can pay a considerably lower monthly payment.
You’ve probably heard that cars depreciate quickly. In fact, CarFax data shows that new cars lose as much as 10% of their value in the first month and as much as 20 percent after the first year.
Once you get past that initial drop, depreciation happens more slowly. Even buying a car that’s just a year or two old can help you avoid the most depreciation.
There are a couple of reasons it might be wise to buy a car that’s already lost some of its value. First, when you finance a brand new vehicle, you could be underwater on your loan almost as soon as you drive it off the lot.
This means that you owe more on the loan than the car is worth. The other problem with buying new is that even if you sell just a year later, you’ll recover very little of your investment. But if you buy used, you can get more of your money back when you sell.
Car insurance companies determine your premiums based on how much they expect they’d have to pay out if you file a claim. When you have a cheaper car, it’s cheaper to replace if you total it. As a result, drivers often pay lower insurance rates for driving used cars.
Lower registration fees
Some states base the cost of vehicle registration on the vehicle’s age. Brand new cars have the highest registration fees, and they slowly decrease as your vehicle ages. If you live in a state that calculates registration fees in this way, then you’ll save money each year with a used car.
Should I buy a new or used car?
There’s no hard and fast rule that says you should buy either new or used. As you can see, there are advantages to both, and you’ll find experts on both sides of the debate. Really it comes down to what’s best for you.
First, it depends considerably on what type of car you plan to buy. Certain cars depreciate more quickly than others. If the car you’re eyeing holds its value well, then you might opt to buy new.
Another consideration is what type of financing you can get. The 0% interest rates that some dealers offer can be enticing. And depending on the interest rate you’d get on a used car, the numbers might work out that buying new makes more sense for you.
But ultimately, cars depreciate very quickly, and you can almost always buy a car that’s just a year or two old for significantly less than a brand new car.
So unless there’s a specific reason why buying a new car is a better financial choice, buying used typically makes more sense. If you’re on the fence, shop around for cars and financing and see what options are available.
Factors to consider when buying a car
There’s a lot to consider when you’re buying a vehicle, whether you’re buying a new or used car. Here are a few factors you’ll want to keep in mind as you’re preparing to buy.
If you’re financing your next vehicle, you’ll want to save for a downpayment. This will reduce your monthly payment, lower your interest rate, and reduce your chances of being underwater on your car loan.
Keep in mind that the more expensive a vehicle you buy, the more of a downpayment you’ll want to have. According to Edmunds, the average car downpayment was 11.7%.
If you’re financing a vehicle, your credit score is going to be very important. First, a bad credit score might prevent you from getting a car loan at all.
And if you can get a loan, the best interest rates are reserved for borrowers with excellent credit. If your credit could use some work, you might consider waiting a while to buy until you can boost your credit score.
The interest rate is one of the most important factors to consider when financing a car. A good interest rate can make the difference of thousands of dollars in savings.
Your best bet is to shop around and get pre-approved before you head to the dealership. That way, you aren’t stuck accepting whatever offer you can get from the dealer.
Cost of ownership
All cars come with their own expenses. The cost of ownership includes insurance, gas, maintenance, etc. Some cars are more expensive than others, so it’s worth doing your research ahead of time. Try to avoid models that are more expensive to repair.
The bottom line
A vehicle is a big purchase, and it’s important to do your research ahead of time to make sure you’re making the best choice for your situation when it comes to buying a new vs used car. Buying new and used both come with their own advantages. The most important thing is choosing a vehicle that fits within your budget.