In conjunction with buying your first house, purchasing a new vehicle may be one of the most financially engaging and momentous actions you will partake in. Purchasing a new or used car is often a decision that many sit with for months on end, from the minute they decide to buy an automobile. The decision is usually reliant on circumstances or preferences. Still, other times, your budget is the chief determinant as to which of the two you will purchase.
There are several factors that need to be taken into consideration. One crucial factor to remember is that unlike investing in buying a new home, buying a car is not an investment. Instead, it is a liability since the minute you drive out of the lot with a brand-new car, it begins to depreciate, sometimes up to thousands of dollars.
Buying a car also does not only entail the purchase price. There are supplementary expenditures that come with car ownership. For example, when calculating your total costs, don’t forget to factor in routine upkeep, insurance, fuel, parking costs, and other miscellaneous costs.
Most financial gurus will probably advise you to buy a used car as it often costs less money. However, having that statement as a blanket rule is short-sighted, to say the least. So, what determines the verdict as to if you should buy new or used? Let’s look at some pros and cons of each one. Hopefully, this guide will help you decide which way you want to go.
Benefits of Buying Used
Numerous car buyers across the world choose to buy used cars for a plethora of reasons. Here are the main ones:
- Controlled Depreciation
A used car has already experienced the better part of its value depreciation in the first few years it was owned. As a pre-owned car buyer, this absolves you from taking the major depreciation hit, particularly for vehicles that are at least five years old. If you choose to resell the car later, you won’t lose out on as much money.
- Great Savings
Purchasing a new car may cost you almost double the price of a used car on average. Ultimately, you should be able to pay off your loan in half the time. That adds up over time, as well. The average American owns thirteen cars throughout their lifetime, and buying used cars each time could save an average total of $130,000 compared to buying new.
- Environment Friendly
Purchasing a used car reduces the need for new vehicles to be manufactured, which in essence means there will be less carbon dioxide produced during manufacturing and fewer cars to pollute the environment.
- Lower Rates
Insurance premiums for a used car will typically cost less due to the automobile's total value compared to a brand-new one, and even more so if you are purchasing on a cash basis. When it comes to taxes, owning a used car in lieu of a brand-new one will attract lower annual rates for you.
- Reliability Data
Buying a used car means you can get access to reliability data, easily available from Consumer Reports. This means that the vehicle's historical reliability is within reach and you can better determine if it is an investment worth making or not. The Auto Surveys submitted to customers provide the reliability statistics of customer reports. The scores are based on reported issues for each year, make, and model of car.
Disadvantages of Buying Used
While there are plenty of reasons to choose a used car, there are downsides as well:
- Questionable History
When purchasing a pre-owned vehicle, it may sometimes be difficult to get access to all the mechanical challenges the automobile may have experienced in the past. Additionally, the previous car owner may sometimes withhold details of previous accident history or even current issues, compromising on the vehicle’s usability and longevity.
- Restrictions
Finding the exact features, model, color and extra functions to your precise specifications can be quite a challenge when purchasing a used car. You generally have to be a bit more forgiving when searching, as it is unlikely that you’ll find the exact car you want.
Benefits of Buying New
Although they may be more costly on the front end, there are numerous reasons why buying a new car may be a better option for you. Although not exhaustive, here is a list of the main reasons:
- Warranty Protection
Most automobiles are guaranteed by a manufacturer that covers three years or 60,000 miles on average for new vehicles. This manufacturer’s warranty gives you peace of mind, knowing that if something was to go wrong, it’s of no expense to you. Also, a 10-year, 100,000-mile powertrain (engine and gearbox) warranty are popular for automobiles. The dealer often even offers an extended guarantee beyond the expiry date of the manufacturer.
- Freedom to Choose
A new car will provide you with the latest features and is easier to customize to your specific preferences. This means that you can select the upholstery you want, be it cloth or leather. You can upgrade the navigation, communication and audio systems. You can choose your ideal color and have it equipped with almost any feature.
- Fuel-Efficient
A brand-new vehicle will generally give you more mileage for a gallon of fuel because all of the parts are fresh and don’t require maintenance. Many manufacturers are also putting fuel economy at the forefront of their priorities, which means that newer models will likely give you better gas mileage because of advancements in car technology.
- Low Maintenance Costs
Buying a new car usually allows you to use it for several years before you start encountering mechanical issues. This will afford you the comfort of only maintaining it, which may help you save money in the long run. Many newer cars may even go between oil changes up to ten thousand miles while using synthetic oil.
- Advanced Technology
In addition to an advanced navigation system, bluetooth capabilities, satellite radio, and internet access, many newer automobiles may also include a self-parking capability, accident-avoidance features, and alerts about lane departure. Cameras on the back of cars were once a marvel, but now you can find vehicles with cameras on the sides and top as well. This reduces the number of blind spots and allows you to know what’s going on around you without sacrificing safety.
- Previous Owner Damage is Eliminated
As there have been no previous owners, there is nothing to affect the vehicle's performance. There are no mysteries about whether the vehicle has had mechanical incidents in the past or unknown accidents not stated at the point of purchase.
Disadvantages of Buying New
Before buying a new vehicle, you should consider your budget as well as some of the disadvantages, which include:
- Rapid Depreciation
A brand-new car will lose just above 10% of its value the minute you drive off with it from the lot. Within the first five years, even a well-maintained vehicle will have lost about 40% of its total value. Depreciation rates are contingent on a number of factors. First, they increase alongside the cost of the car, meaning the more expensive an automobile is, the higher the depreciation rate. Mileage, fuel economy, current trends, and the reputation of the make and model can also all affect how fast the car loses value.
- Unknown Reliability
Older models of a car often have tons of information from other people about what they like or don’t like, but a new vehicle won’t have a substantial amount of reviews from other consumers. While all cars are tested and rated for safety, it takes a couple of years to get a good picture of it’s benefits and pain points.
- More Expensive
The cost of buying a brand-new automobile over a used one is almost double, making it a costly purchase overall. It may put an unnecessary strain on your budget if you aren’t financially ready or if a life event changes your financial situation.
- Higher Taxes & Inflated Insurance Rates
New vehicle acquisitions, in most countries, will attract higher taxes and inflated insurance premiums. This is because the replacement value in case of a claim will be much higher than that of a used vehicle, consequently increasing your initial procuring costs significantly. If you seek financing, consider that the dealership may insist on full insurance coverage before completing the transaction, further increasing your costs.
Putting Your Budget and Situation into Consideration
Data from Experian Automotive indicates that at least 85% of those purchasing new cars either lease them or seek financial assistance. The situation is the same for most used-car buyers. Keeping your budget in mind may drive you to buy a used car as you can almost always find a good, reliable, and affordable automobile. However, it might require more time to search for the right car, and it may not last a very long time. If you’re looking for longevity and are working with an unrestricted budget, then purchasing a brand-new vehicle will likely be the preferable option.
An affordability calculator would also be a good parameter to use to determine how much you are currently able to budget for a car. If you are contemplating financial support, you can use a car finance calculator to help you determine what your monthly costs are likely to be before making your request.
Final Thoughts
There is no one-size-fits-all answer when it comes to determining whether to purchase a new or used car. It entirely depends on your situation, budget, and personal needs. However, knowing these advantages and disadvantages of each can help you to make the right choice for you and your family. Take plenty of time to do your research before purchasing a car, and you can rest assured that you made the right decision.
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