Should I Buy a Used or New Car?

Fran
Fran Majidi
June 25, 2019

“Is it better to buy a new or used car?” The word “better” is tricky because what’s great to one person may not be so swell for another. However, if by better you mean wiser or more frugal, you will save thousands of dollars if you buy used.  Why will you save so much? Depreciation. But what if you’re a car enthusiast who’s mainly interested in driving the newest model year? There’s no accounting for personal preferences, but we break down the differences in buying a new car vs a used one.

What Is Depreciation?

Depreciation is what happens as soon as you drive off a dealership lot with a car. It’s estimated that a car loses 20% of its value as soon as you purchase it and wave goodbye to the salesman. Yes, so a $20,000 loses $4,000 in value in the blink of an eye. Yes, it’s kind of painful when you think about it, but that’s the reality of depreciation. Over time, some cars depreciate more gently than others, but 20% off the lot is about right for all cars, and 30% after the first year that you own the car. 

What’s the Depreciation if I Buy Used?

Used-car depreciation is a little gentler, if only because you’re buying a less expensive car. On average a used car depreciates by 10 % annually, according to Carfax. Using the example above, that $20,000 new car is worth $14,000 after a year of driving. Overall, this car cost you $6,000 in depreciation. 

If you bought the car mentioned above used at $14,000, after a year it would be worth $12,600. You only lost $1400 in depreciation. Do you see how you saved $4600?

Some cars depreciate slower than other cars. Volkswagens, for example, tend to have a higher resale value than other cars in the same class. In short, they depreciates slower and are worth more than other cars with similar mileage.

Should I Buy a New or Used Car?

Only you can decide if it’s worth buying a new car. Does driving a brand new car mean that much to you? If it does, you won’t mind the depreciation you have to pay for it. Some people simply feel the need to own a brand new car and only keep the one they lease for a few years. This doesn’t mean that they are abusing their cars or not taking care of it. If you’re worried about buying a car that will break down, chances are that you’ll end up with someone’s well-kept leased car if you buy used. In fact, in many cases, owners of leased cars are the most careful because they want to avoid paying all sorts of fees when they return the car after their lease period ends. Also, cars these days are built to withstand miles so the 30,000 on the car you’re buying don’t mean much when the car can last up to 150,000 miles.

So, should you buy a new or used car? The answer to that is relative to your budget. If you can afford the luxury of paying for depreciation or if the newness of your car really makes you happy, go for it. If it’ll make you have to take on another job, you may want to reconsider the fact that you’ll have less time to spend in your new car.

Is it Better to Buy a Used Car or Lease a New One?

Are you wondering about car insurance and registration? You should be because the less the vehicle is worth, the less you pay in these types of fees too. If you’re buying the car outright without taking out a loan, you aren’t even required to carry collision and comprehensive. However, if you lease or finance from a lienholder, you will be required to do so. Even if you have to buy the additional coverage, if your car is worth less, your rates for these add-ons will be less too.

Used Car vs New Car

In terms of saving money overall, used cars win hands down. However, there’s no denying that there are advantages to buying a new car. For one thing, you’re not going to need to take it to a mechanic if you’re buying a new car. You can pretty much count on the vehicle being in perfect condition. If there is anything wrong with the car, you know the manufacturer is responsible for it or it may be deemed “a lemon.”

With a used car, you also likely have a warranty if you bought the car from a dealer. You are, however, paying anywhere from $300-$700 a year for an extended warranty. A new car usually comes with a fixed warranty of about 36,000 miles, during which time, repairs are free.

When you buy a new car, you will have many more financing options than if you bought a used car. First, there are more cash rebates for buying a new car, and new car loans have lower interest rates. However, if you are using a credit union to finance your car, the difference may be minimal. 

There’s nothing like shiny new knobs and having the latest technology when technology is advancing so quickly. There’s always something that’s worth the payment each month, and new cars always feature the latest safety features and driving options. 

On the flip side, you may be able to afford a better, more luxurious car if you buy used. This car may be one that has better resale value or depreciates more slowly.

Insurance: Never pay more than you need to pay for car insurance. Whether you buy used or new, you should always compare car insurance rates

To compare car depreciation prices, visit Kelley Blue Book and see how the cars you’re interested in fare after a few years.

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