You need a car, and the new cars you see look beautiful. Theyâre clean, smell nice and have every latest gadget and technological advancement. You figure a new car wonât break down, and it comes with a warranty and the option of a service contract. Itâs so easy to go to a new car lot and sign on the line for the car you want.
On the other hand, you can get a used car for less, and drive it for years to come. But you dread haggling with the owner or youâre leery of a used carâs questionable history. If you hate to part with more money than you have to, you may agree with author and consumer advocate Beverly Harzog who said, âI have a visceral reaction to buying a new car.â Buying this yearâs model may feel like an extravagant waste of money.
So which is better, a new car or a used one? It depends on you and your situation. Before you decide to buy a car, make sure you understand the advantages and disadvantages of buying new or used. Just as importantly, be sure you know why you are buying a car, what you want and need from it and what you can afford.
New cars have some advantages, which can sometimes make them worth the higher price tag, an average of $37,169, according to Kelley Blue Book, nearly twice as much as the average used car price of $20,247.
Car models tend to go four to six years between major redesigns. It can be difficult to tell this yearâs model from last yearâs, or even one from several years ago. If youâre a car aficionado and you want the look of the newest model, however, you may not mind paying for it.
Technological and safety features have made big strides in recent years. Heated and ventilated seats, 360 degree cameras and USB ports are common, though itâs likely youâll have to upgrade to a higher trim level or pay more for some of these features. Some cars even offer features that were unheard of a few years ago like parking assist, which may help cars maneuver into a parking spot with limited or no driver assistance.
New cars should spend less time in the shop than older ones do. Car parts wear out, often at fairly predictable rates.
Although the difference in repair costs varies between brands or even models within a brand, these costs trend higher as cars age. Using Edmundsâ True Cost to Own tool, for example, a consumer near Seattle who owned a 2014 Accord Sedan EX four-door sedan (2.4L 4-cylinder CVT) paid on average $320 for repairs in the first year of ownership. In the fourth year of owning the same car, the average amount rose to $507.
Brand-new cars are sold by dealerships, not private parties or secondary dealers, which makes buying one fairly straightforward. Simply drive to a dealer, and theyâll be happy to sell you a car.
Because the car is new, you donât compare mileage on one car with that of another, or worry about whether the car has been in a wreck.
The dealer will even be happy to sign you up for financing on the spot (although that might not be your best deal).
Some dealer and manufacturer incentives are available to everyone, while others only work if you meet certain criteria, such as being a veteran or living in certain geographical area. For example, Toyota offers a $500 military rebate to qualified service members and veterans. You may qualify for 0% financing incentives, often available to customers with excellent credit. Although new cars are still more expensive than used ones, sometimes a new car incentive can help bridge the gap.
A new car shouldnât be spending much time in the shop, but if it does, a warranty or service contract can give you peace of mind. The contract may also help you maintain your car in top condition while it is in force, but research the pros and cons of extended warranties before signing.
If cost were not a factor, perhaps most of us would buy brand new cars every time. In the real world, however, we have limited funds and we need to make the best use of them. Here are three drawbacks of buying a new car.
âThe gap between pricing of new and used cars is becoming pretty wide,â said Matt Jones, senior manager of Insights at Edmunds. âThe average new car price is now about $37,000. A person who is looking to make the most of their money will see a savings on a used car of 30-40%.â When people make payments for close to six years on a car, the more expensive car costs them a lot of money in principal and interest.
âThe most bang for my buck, without a doubt, is used cars,â said Jones.
Cars donât depreciate (go down in value) at an even rate over their useful lives. Their value tends to drop when they are driven off the dealerâs lot and plummet as much as 50% in the first few years, before slowing down around year five. Those first few years are expensive ones to own a car, when the showroom gleam is first wearing off. Insurance provider State Farm factors in depreciation as well as taxes in its new versus used calculator â plug in the price of a used or new vehicle youâre eyeing as well as your state and local taxes to compare.
With new cars, itâs easy to let the amount you are willing to spend creep up beyond what you intended to spend, especially if a dealer emphasizes monthly payments over total sales price. Whatâs a few thousand here and there when youâre spreading it out over several years?
When youâre bargain hunting for a used car, especially if youâve saved up all or part of the money ahead, you may be able to stick to a budget more successfully and avoid mistakes.
The biggest reason to buy a used car is to save money, saving as much as 30-40%, but there are other reasons, too.
Buying an older car doesnât necessarily mean settling for less. You may be able to afford a higher quality car if youâre willing to buy it when itâs a few years old. Harzog, the finance author, likes driving a luxury car, such as a Lexus. âI prefer used cars. I keep my cars almost until they turn into dust,â she said. âIâve only had about four cars in my life.â
By consistently buying used vehicles and keeping them as long as possible, youâll save over time. AAA estimates that the cost of owning a new car is an average of $8,849 a year â a significant sum if you roll from new car to new car.
If you buy the car after the first couple of years, itâs still a good car. But someone else has paid handsomely for the privilege of driving it new.
Cars are lasting far longer than they did in the past â Americans keep cars for an average of 10 years, longer for trucks and vans. âThe reality is that most used cars, say three or four years old, are going to live for a long time,â Jones said. âSince cars have been built so well in the last few years, a lot of the fears people have can be put aside.â
If youâre worried about buying a used car, Jones suggested buying a certified pre-owned car. âCertified pre-owned is a used car, but itâs a used car that has been treated pretty well and is backed by the manufacturer,â he said. âItâs the best of both worlds. The carmaker is standing behind it.â
Although youâll almost certainly save money buying a used car, you should know that buying a used car can be more complicated and sometimes riskier than buying a new car. Here are a few drawbacks of buying used.
You can buy a used car from many different places, including a reputable used car lot, dealership, website or from a private party. Some people are less comfortable going to used car lots or responding to classified ad listings to find cars. You could buy from a friend, but if anything goes wrong, you can lose the friendship.
Comparing new car prices from one dealer to another should be fairly straightforward. Used cars can have more variables, from the number of miles on the odometer to the condition of the car. This makes it a bit more subjective to determine the value of the car. Itâs important to research using a service like Kelly Blue Book or NADAguides.
The older the car, the more it typically costs to keep it running. Some cars hold together better as the years go by, but they still need regular maintenance, and some parts will wear out. Standard manufacturer warranties vary in length, and some warranties are transferable to new owners, while others are not. Be sure you know if any existing warranty will transfer to you, and how much of the warranty period is left.
If you buy an older used car, and you finance it for a number of years, be careful. âThe danger is that the car is going to continue to lose value,â said Harzog. âYou could end up underwater. Youâre still making payments on a car, and itâs not worth what youâre paying.â
While this is also possible with a new car, especially if you donât make a down payment or finance it for a long term with high interest, Harzog recommends that you pay off a used car as quickly as you can.
Before you decide to buy new or used, ask yourself these questions:
Do you want a new car? Assuming you can afford it, Jones said, âIf you want the new car, get the new car. Maybe thereâs new technology, or maybe they want to be the first butt to sit in that seat.â Buying a car is an incredibly emotional decision, and as long as youâve done your research, buying the right car is more important than deciding to buy new or used. âMake sure you buy what you want,â said Jones. âThat sounds obvious, but itâs not. When people buy cars they donât want and they end up trading them in later, that mistake is far more expensive than any other mistake they could make.â
What will you use the car for? If you need a car simply to get to work safely, the latest technology and styling may not matter much. If you use your car in your work; for example, you drive clients around in your car, you may need to keep up with appearances. You may also need a newer model or specific features if you transport people or goods, if you live somewhere with inclement weather, or if dependability is your top priority.
What can you afford? If you have cash saved to buy a car, you know how much you can pay. If youâre financing a car, whether itâs new or used, make sure you can make the payments. âJust as a guideline, your car payment shouldnât be more than 10% of your gross income,â said Harzog. âYou just want to be sure you have enough cash to cover it. Itâs a line item in your budget.â You could use an auto calculator to help you make your decision.
Buying a new or used car can significantly impact your financial life for years to come. A good car-buying decision can help you feel more secure, giving you reliable, affordable transportation. A bad decision, on the other hand, can cause stress and keep you from reaching your other financial goals. In the worst-case scenario, you could even lose your car and wreck your credit if you canât make the payments.
Whether you buy a new or used car, the secrets to making good purchasing decisions are research, research and research. Before you buy a car, be sure you know why you are purchasing and what you need it for. Make a budget and know exactly what you can afford. And research cars, so you know what kinds of cars you are interested in, and what you should expect to pay, before you negotiate a good deal on your next car.
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