B is for Buying a New Car Vs. Buying a Used Car – What’s best for you?

Buying a new vehicle vs. buying a used vehicle which is best for you?

Deciding to buy a new or used car is a big decision. There is no definitive answer, so do your research and make sure you find a vehicle that fits your needs at the best deal possible. Below are some pros and cons to consider:

Buying a Used Car Pros:

Affordability – if this is your number one concern when purchasing a used car will be the best route for you. Purchase a 3 to 4-year-old used car with an extended warranty to minimize future repairs.

Slower Depreciation – buying a used car has the benefit of depreciating at a much slower rate than a new vehicle as well as will give you yearly savings on insurance and taxes.

Lower Insurance and Taxes – registration, taxes, and insurance will be lower due to the depreciated value of the car. You may even be able to drop collision and comprehensive coverage, which pay for repairs to your car, this will save you more.

Today’s Technology – you can take advantage of today’s technology which allows many vehicles to remain trouble free for well over 100,000 miles. Modern-day vehicles have never been more reliable than they are today.

Buying a New Car Pros:                                   

Reliability and Manufacture Warranty – having a new car tends to reduce the chance of breakdowns and if a problem does occur, chances are the manufacturer’s warranty will fix it at no cost up to a certain amount of mileage or a set number of years (depending on the terms of the warranty). This will provide you with trouble free ownership for the first 3 to 5 years depending on the term of the warranty.

Advanced Technology – every year new features are offered to provide better comfort, performance, and safety. Today’s new driver-assist and advanced airbags technology make driving a safer experience, and to some this is invaluable.

Customization – you can choose your favorite color and add only the extra options that you desire.

Financing options – automakers offer plenty of incentive on new cars such as lower interest rates and cash rebates.

Buying a New Car Cons:

Depreciation – most of us are aware that the moment you drive a brand new car off the dealer’s lot, it will depreciate by thousands of dollars. For example, say you purchase a new car for $30,000, the moment you sign those papers your brand new car depreciated by at least 10% – this is a loss of $3,000 in just a few moments. Also, consider the fact that most new cars depreciate 20% in the first year and 40 to 50% during the next three years of ownership. Now your $30,000 car has lost $15,00 in depreciation cost.

Sales Tax – owning a new model will raise your sales tax. The more expensive the car, the higher the sales tax will be.

Insurance – a new car will incur a much higher cost when purchasing insurance because replacement cost is higher

Repairs – tend to be more expensive because when something goes wrong with your brand new car, it won’t make sense to repair your car with anything other than the original manufactured part, which will cost you top dollar.

Buying a Used Car Cons:

All Cars Are Not Created Equal – not all cars depreciate at the same rate, and some hold their value extremely well. You can find out how much a certain model depreciates on various automotive websites, such as Kelley Blue Book or Consumer Reports.

Maintenance – older cars tend to require more maintenance even if you bought it in perfect running condition. As the miles add up so can the cost of maintaining the car.

Lack of Manufacture Warranty – not having a warranty puts you at risk for higher repair cost should a major problem occur. If you want peace of mind, you’ll have to purchase an extended warranty, which can cost you upwards of several thousand dollars that you may or may not need.

Higher Interest Rates – expect to pay a higher APR on a used car due to the higher level of risk.

Buying a car whether used or new requires knowing your budget, doing your research and knowing what is most important to you.

Answers from A to Z

 

About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™). If you have comments on this post contact Ann Zuraw

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