One of the biggest decisions when buying a car is whether to purchase new or used. Factors like upfront cost, depreciation, customization options and reliability all come into play. This guide examines the key pros and cons of both choices to help you decide what works best for your situation.
New Car Purchase Overview
New cars offer the latest features and technology in a vehicle, as you are the first owner. However, they come at a premium price point and depreciate quickly in the first years of ownership.
Benefits of Buying New
Here are some of the main advantages of purchasing a brand new car:
Full Customization
Ordering a new vehicle allows you to pick the exact color, trim packages and options you want rather than settling for what a dealer has in stock. This personalization improves the ownership experience.
Cutting-Edge Features
New model year vehicles contain the most modern amenities when it comes to entertainment, connectivity, driver assistance and safety. These innovations may be important to you.
Warranties and Maintenance
New cars come with generous manufacturer warranties (typically 3 years/36,000 miles) that cover repairs during that ownership period. Initial maintenance costs are also lower.
Better Financing Terms
Qualified buyers can take advantage of 0% APR deals and other incentives only offered on new car purchases. This allows keeping more cash in your pocket.
Drawbacks of New Vehicles
However, buying new also comes with a few key downsides to consider:
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Expensive Upfront Cost
The sticker price on a new automobile is substantially higher than a used version of the same model. Large down payments or trade-ins may be required to keep monthly payments reasonable.
Rapid Depreciation
A new car can lose 20-30% of its value in the first 12 months and up to 50% by year three. This creates negative equity if you want to trade in or sell it.
Higher Insurance Premiums
Insuring a new vehicle that hasn’t depreciated yet costs more per month than insuring a used car. Premiums may exceed what you anticipated.
Used Car Purchase Overview
Pre-owned vehicles offer big savings over new with slower depreciation. But you may need to compromise on exact features or condition when buying secondhand.
Benefits of Choosing Used
Opting for a previously-owned car provides several financial upsides:
Lower Purchase Price
Used cars can cost thousands less than new MSRP for the same make and model. This discount makes vehicles more affordable for buyers on a strict budget.
Reduced Depreciation
Once a car has taken the big first-year depreciation hit, yearly value drops slow down significantly in subsequent years. Your used car investment loses value at a slower pace.
Lower Insurance Rates
Because used cars have less value at risk to insure compared to new, monthly premiums to protect your vehicle are notably cheaper.
Available Certified Pre-Owned Programs
CPO vehicles provide peace of mind with thorough inspections and extended warranty coverage. This sweetens used car deals.
The Downsides of Used Cars
However, there are a few potential disadvantages to weigh with pre-owned vehicles:
Settling on Features or Condition
Finding a used car with the exact color, mileage, options and service history you want can prove challenging. Inventory doesn’t allow custom orders.
No Warranty Protection
Once factory and CPO warranties expire, out-of-pocket repair bills may arise. Budgeting for maintenance is important with older rides.
Unknown Past Treatment
Unless you get a detailed vehicle history report, it’s difficult to know for sure how previous owners treated the car. Suspension, engine and transmission may have underlying issues.
Higher Interest Rates
Used car loan APRs through banks and credit unions trend 1-4% higher than new vehicle financing, making borrowing more expensive.
Key Buying Considerations
Weighing a handful of factors can steer you towards new or used. Here are some key purchasing considerations:
Affordability Needs
If you require an especially low monthly payment, used cars better match budgets impacted by interest rate hikes and inflation. New cars carry steeper pricing.
Latest Features or Technology
Self-driving capabilities, large touchscreens, Wi-Fi hotspots and other cutting edge tech debut on the newest model year vehicles first. Used cars lag 1-5 years behind.
Custom Ordering Exact Specs
Ordering a factory customized new vehicle allows picking colors, upholstery, engine sizes and technology packages off an options sheet. Used vehicles limit you to what’s on the lot.
Reliability and Peace of Mind
CPO used cars offer warranties rivaling new vehicles. However, buying new provides a full service history and no surprises since you are the original owner.
Strong Resale Value
Certain new car models hold value exceptionally well long-term. This reduces depreciation losses when you eventually trade-in or sell your vehicle.
Cost Comparison: New vs Used Car Buying
Price remains one of the biggest factors in deciding between new and used rides. Here is how pricing shakes out across different scenarios:
New Car Payment Breakdown
A $35,000 new 2022 Honda Accord EX-L financed over 60 months at the average 4.5% APR results in:
- Monthly Payment: $668
- First Year Maintenance Estimate: $140
Used Car Payment Scenario
A $22,895 used 2017 Honda Accord EX-L financed over 60 months at 6% APR produces:
- Monthly Payment: $450
- First Year Maintenance Estimate: $1,371
In this real world example using a midsize sedan, the used vehicle saves $218 monthly but $1,231 more in potential repairs and upkeep during the first year of ownership.
Frequently Asked Questions: New vs Used Car Buying
Below are answers to some other commonly asked questions when deciding between new and used vehicles:
Which depreciates faster: new or used cars?
New cars take the biggest depreciation hit, losing 10-30% in year one. Used cars depreciate at a slower pace annually in subsequent years since the initial drop already occurred. Luxury and sports cars tend to depreciate quicker than mainstream sedans and SUVs.
Which is cheaper to insure: new or used vehicles?
Used car insurance premiums cost substantially less compared to insuring newer vehicles. Once you drive a brand new car off the dealer’s lot, insurance rates spike 20%, on average. Rates only reduce as vehicles age and subsequently depreciate.
Do used cars require more maintenance?
As vehicles age, the risk of repairs and component failures rises. Certain parts like batteries, alternators, belts and hoses need proactive replacement every 5-7 years. Additional repairs crop up more regularly beyond 100k miles.
Is buying CPO better than new?
Certified pre-owned models provide cost savings over new plus extended warranty coverage for added peace of mind. However, you may need to compromise on exact features or condition. Test driving CPO vs new versions of the same vehicle can help decide if the trade-offs are worthwhile.
Which loan terms and rates are best?
Opt for used auto loan terms under 60 months and new car loan terms under 72 months to minimize interest fees and prevent upside down situations. Securing preapprovals from multiple lenders before negotiating helps obtain the most competitive financing rates. Credit unions and banks beat dealership financing.
In another related article, Average Car Insurance Costs in 2023: A Complete Analysis
