Deciding whether to buy a new or used car comes down to many factors and is a very personal decision based on an individual's finances and needs. Some important factors to consider include the cost, available financing deals, current interest rates, depreciation, insurance costs, and mileage. Below, we discuss some of the advantages and disadvantages of buying new or used cars to help you decide.
Key Takeaways
- New cars come with the latest safety features and are very likely to be reliable, though they can come with a higher price tag and insurance costs.
- Used cars are generally cheaper because the high depreciation of their early years is already behind them and you may not need as much insurance coverage.
- Certified pre-owned cars are more expensive than other used cars but may be in almost-new condition.
- When deciding between a new car and a used car, consider the ongoing maintenance costs, repairs, gas, and insurance.
Advantages of Buying a New Car
There’s no denying the curb appeal of a brand-new car, from that new-car smell to the shiny paint, the clean interior, and the “oohs” and “aahs” when your friends see it for the first time. In our consumer culture, a new car is an undeniable status symbol that lets the world know you’ve arrived (literally). Cosmetics aside, a new car also has some other advantages.
Reliability and warranty protection. Most new cars have good reliability records, and if anything goes wrong, it’s probably covered by the manufacturer’s warranty. Buying new also means you don’t need to be concerned about how the vehicle was treated before you bought it.
Free roadside assistance. Many new cars come with roadside assistance. This can save you the cost of paying for coverage on your own or being stuck with a towing bill if your car breaks down.
The latest features. New cars will likely meet the latest fuel efficiency standards and have the most up-to-date safety features.
Attractive financing deals. Many carmakers and dealers offer financing programs with low or no interest if you have good credit. That can make it less expensive to finance a new car than a used one.
Important
Be sure to shop around for the best car loan terms to find the most affordable option for financing a new vehicle.
Disadvantages of Buying a New Car
Of course, new cars also have a few things going against them.
Expensive to buy. Buying a new car is hard on the wallet. If you’re using an auto loan to finance the purchase, you’ll most likely borrow more than you would with a used car and end up paying more interest over time.
Quick to depreciate. New cars depreciate more quickly than their used counterparts. A vehicle loses the most value in the first few years of ownership—and a huge chunk of that in its first few seconds off the lot. By some estimates, the instant loss can be 10% of the car’s value. That’s because when you purchase a new car from a dealer, you pay the retail price. As soon as you’re off the lot, the car is only worth its lower, wholesale price. This is the amount that the dealer would be willing to pay if you turned around and tried to sell it back.
Costlier to insure. New cars also have higher auto insurance costs than used models because their replacement values are higher.
Not new forever. Finally, new cars don’t stay new for long. You’ll get your first scratch or nick in a day, a week, or a month. By the end of the first year, the floor may be stained, the doors dinged, and that sweet new-car smell will be just a memory. Of course, the monthly payments will linger for years.
Important
Before you buy a used car, the Federal Trade Commission recommends getting an independent inspection and obtaining a vehicle history report.
Advantages of Buying a Used Car
“Pre-owned vehicles,” to use the marketing jargon for used cars, may lack the mystique of new cars. But they have some advantages.
Lower prices. By the time a vehicle comes on the used-car market, much of its depreciation has already happened (and has been paid for by the prior owner). So, buying used is an opportunity to get more car for your money.
Warranties available. Some vehicles now come with warranties that cover the most expensive components of a car’s drivetrain for 200,000 miles. If you buy a certified pre-owned car from a dealer, then you’re likely to get a warranty that extends the manufacturer’s original warranty. (Certified pre-owned cars tend to be more expensive than other used cars, but they also have been rigorously inspected and spruced up, as needed.) Of course, if you’re handy with a wrench, then buying a car that needs a little time and attention can dramatically reduce your cost.
Cheaper to insure. While a dealership may require full insurance coverage for a new vehicle you’re financing, you may be able to spend less on insurance if you’re paying cash for a used car.
Tip
Take time to compare the best car insurance companies to see where you can find the best combination of ample coverage and low premiums or deductibles.
Disadvantages of Buying a Used Car
Whether or not they’re under warranty, used cars still come with some potentially pricey unknowns. Because you don’t know how the last owner treated the car or why it was traded in, there is always the danger of buying somebody else’s problems.
Higher mileage. A used car is likely to have higher mileage, which can reduce its lifespan. If you buy a higher-mileage car, you may need to replace it sooner rather than later, which can add to your vehicle-buying costs.
Limited selection. It can be challenging to find a used vehicle with the exact options and features that you want.
Fewer consumer protections. If you’ve purchased a lemon, you may have less recourse than you would with a new car because lemon laws often apply only to vehicles under a certain age and with less than a particular number of miles on the odometer.
Should You Buy a New or Used Car?
When considering whether to buy a new or used vehicle, consider both the up-front price and the ongoing costs. Some of the things that you may be responsible for paying with a new or used car include:
- Down payment
- Taxes, title, and fees at closing
- Property tax
- Car insurance
- Maintenance
- Repairs
- Gas and oil
- Interest
A new car may cost you less in terms of repairs, at least for the first few years. By the time the vehicle starts to need major repairs and upkeep, you may be ready to trade it in. If you pay cash, a used car may cost you more for maintenance but less in interest charges on a loan. So, consider all the variables when calculating the cost of buying a new car versus a used one.
And remember that whether to buy a new or used vehicle isn’t entirely a financial decision. While used cars tend to be cheaper—at least initially—you may not be able to get all the features you want without making some compromises. Unless you’re in a hurry to buy, it can pay to look at both. See what’s available on the used lot as well as in the new-car showroom, compare the price differential, and ask yourself which option you, and your finances, would be most comfortable with down the road.
The current interest rate environment will also be a factor in determining whether you should buy a new or used car. In general, when interest rates are high, buying a new car costs more if you finance part of the cost because you pay more interest. When interest rates are lower, a car costs less.
In general, new cars have lower interest rates on loans while used cars have higher rates; however, used cars also cost less. Additionally, because new cars have a higher principal, the loan term is usually longer than for a used car, so doing the math to figure out what the actual cost would be in the end between the two is crucial to decide.
What Is the Main Disadvantage of Buying a New Car Over a Used One?
The main disadvantage of buying a new car versus a used one is that a new car costs more. On top of that, it also loses a significant portion of its value once driven off the lot.
What Questions Do You Ask a Dealer When Buying a Used Car?
The main questions to ask a dealer when buying a used car include:
- What is the MSRP?
- What are any other fees included in the sale?
- How many miles have been driven on the car?
- What is the safety rating?
- Does the vehicle include any parts not from the maker/after-market parts?
- Is the vehicle certified pre-owned?
- Are there any warranties?
What Is the 20/4/10 Rule?
The 20/4/10 rule is a method to help consumers determine whether they should buy a used car or not. To apply the rule, budget in the following manner: 20% downpayment for the car, four years for repayment terms, and 10% less spent on monthly transportation costs.
The Bottom Line
Whether or not you should buy a new or used car will depend on various factors. Set aside time to determine what's right for you and do the research to ensure you're picking the best option and cost for your budget and needs.
