Buying New Vs. Used Cars: The Pros And Cons
Hanna Kielar7-minute read
January 24, 2022
Trying to decide if you should buy a new or used car can be difficult. This choice can be the difference between getting the car you love at a good price and the fleeting satisfaction of a purchase only to be deflated by that first monthly payment.
There's an outdated myth that used cars somehow aren't as good as new models or that they're less reliable. Owners of used cars will balk at how much money new-car owners are willing to pay for the steepest depreciation in a car’s life. We’ll help you decide what’s worth your time and money.
Is It Better To Buy A New Or A Used Car?
There's more to buying a car than preference for new versus used. Drivers also must consider how easy it is to get financing, maintenance and ownership history, service life, lifetime value and depreciation.
Buying new means you’re the first owner of the vehicle. You can expect new technology, a clean vehicle history and a simplified titling process.
Used cars can vary widely in terms of their condition. They could have had any number of owners, private or commercial. They might be pristine classics from over 30 years ago, or beaters with nearly 200,000 miles on them.
Certified pre-owned (CPO) vehicles, on the other hand, are typically less than 5 years old, have good mileage and have passed an extensive inspection to make sure they're free from defects. Due to the wide variety in the used market, it’s important to be aware of the informal distinction between older used cars and nearly new certified preowned cars.
If you’re looking to buy from dealers and marketplaces like Vroom or CarMax, you won’t see vehicles listed as CPOs. You will instead see quality guarantees and generous return policies that allow you to drive the car for a set amount of time and to return it if you are unsatisfied. Whatever type of car you end up buying, make sure to check the car’s report history on a site like CARFAX to make sure you’re getting the most complete information possible.
Unlike some of the much older cars on the used market, pre-owned vehicles are often eligible for car loans at a low monthly payment. That’s because all CPO vehicles are covered under factory warranties: an extended powertrain warranty that covers the engine and other major mechanical issues, and a shorter bumper-to-bumper warranty.
If you have the credit score needed to buy a car, buying pre-owned might be for you.
You can still get a loan on an older used vehicle, but you may encounter higher interest rates and lender restrictions. Be sure to consider how this impacts your budget. If you have the means, paying cash for a used car is a great way to avoid interest and fees.
The Benefits Of Buying New
The advantages of buying new are real, and many people prefer being the first listed owner of any car they're going to invest in. New cars often come with the benefit of the latest technology, free roadside assistance, a potentially longer service life and more.
There's no denying that new cars have more updated technology than older models. Whenever a new feature appears in a car, it will take a few years until those vehicles then hit the used-car market. If you're a car buyer who needs to be an early adopter of high-tech car features, buying new is your best option.
Free Roadside Assistance
Many new cars come with an offer of free roadside assistance if you, say, lock yourself out of your car or need a tow. Manufacturers are generally comfortable offering this as an incentive because they know you probably won't need it. Your new car is really unlikely to need serious assistance within the first few years of ownership, but many people like to have that safety net as peace of mind.
While free roadside coverage can be a nice perk of buying new, remember that most insurance companies will add it to your policy for a nominal rate, especially if your car is new, and you might even have the benefit already as part of your credit card or cellphone plan.
Potentially Longer Service Life
If you buy a car new and drive it for its entire life, you're probably going to get an extra year or two out of it than you would if you purchased it used. While a vehicle history report on a used car will offer a service history, accident history and ownership history, you won’t know exactly how the first owner drove the vehicle. Buying new allows you to have complete control over the maintenance of the vehicle and how it’s driven.
The Drawbacks Of Buying New
Buying new isn't all good. Depending on your circumstances and priorities, some of the drawbacks of buying new may outweigh the benefits.
Significant Car Depreciation
The two worst days in a car's life are the day it goes to the wrecker’s yard and the day it's first bought. The former is self-explanatory, but the latter is arguably more of a problem for the car's first owner. Brand-new cars typically depreciate 20% – 30% during their first year of ownership, with most of that loss happening the moment the sale papers are signed.
You can expect to see an additional 10% loss of value in each subsequent year of ownership. If your new car has a list price of $50,000 while it's parked on the dealer's lot, for instance, it will probably roll into your driveway with a resale value of between $40,000 and $45,000.
Expensive Car Insurance
Auto insurance is almost always more expensive for new cars. As a rule, insurance rates drop by about 3.4% for each year your car ages, which doesn't quite keep up with the depreciation but does take increased costs of maintenance into account. The huge variation in insurance rates across companies, ZIP codes and multiple trim levels per model means that you could be quoted almost unlimited different rates just for one type of car.
The 2021 Toyota Corolla, for example, comes in 12 trim levels and can be insured in any of the 41,692 ZIP codes in the United States. Without factoring in any other variables, this could produce 1,161,216,000,000 different rates, most of them in the $95 – $115 a month range. Expect to pay something more like $100 – $125 a month for the 2022 models.
The Benefits Of Buying Used
Car shoppers who would rather pocket some extra cash for that long-awaited vacation (or paying off bills) should consider the benefits of buying a reliable used car. The numbers don’t lie: the average used car price is 40% lower than the average new car price.
Used cars are virtually always more affordable than newer models. In 2021, used cars hit a record high average price of $25,101, according to Cox Automotive, the parent company of Kelley Blue Book. This is well beneath the average price of a new car, which topped $42,258. That means used cars, on average, are generally 40% cheaper than the average new car. If you're buying a car on a budget, it's hard to miss the price benefit of buying used.
High quality isn't a benefit exclusive to used cars, obviously, but there's a lot to be said for how well modern pre-owned cars run compared with what used to be on the used car market.
Ever since resale value became a selling point for new cars, manufacturers have been designing their vehicles to run longer and wear out less quickly than in decades past. This may be part of what has been driving up the average used car price over recent years; used cars today are just a lot more reliable than ever before.
More Bang For Your Buck
Your range of interest in which car you should buy is likely much more flexible than your budget. If you’ve been approved for a $20,000 car loan, you’re going to be much more limited in the new market than in the used market. That $40,000 truck you’ve been eyeing at the dealership lot could be yours if you can accept that someone else drove it for a few years before you.
Whether you’re looking for an off-roading car or a hybrid, your budget may get you further when looking at used cars.
The Drawbacks Of Buying Used
Used cars aren't perfect, of course. Like everything else in the world, they have their downsides.
Used cars almost always come with higher mileage than new vehicles. This is probably unavoidable since it's hard for a 2-year-old car to compete with 12 miles on the odometer of a new model. Higher miles aren't necessarily a deal breaker, however. Today’s engines are built to last well over 100,000 miles.
Before you turn away from a car with 100,000 miles on the gauge, be sure to look up the specific model. There's quite a bit of variation in how many miles a car can last, depending on the make and model and its service history.
Buying used is going to require more research on your end than buying new. You’ll need to review the vehicle history report, assess the condition of the car, the mileage, any warranties and then some.
It’s important to know what to look for when buying a used car before you ever step foot on a lot.
Is It Worth Buying A New Car?
Only you can know your needs for your next vehicle. If you like to keep up with the absolute latest technological advancements in the auto industry, buying new could be right for you. For most people, saving an extra $20,000 can feel like a no-brainer.
The Bottom Line: Used Cars Will Save You Money
New cars are inarguably nice to take home, but don't count out a used or certified pre-owned vehicle off the bat. While used cars will be more likely to encounter repairs or replacements, the cost of depreciation on a new vehicle can reach the tens of thousands in the first 5 years alone.
Buying used will almost always save you a significant amount of money than buying new. If your gut is already telling you to buy used, your next step towards savings will be to learn how to get the best deal on a used car.
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