If you’re looking to stretch your dollars when buying a car, the universal rule is to buy used. Because new cars depreciate in value so rapidly in the first few years, you can potentially buy a clean, used car for half the price of its new counterpart.
Under financial pressure from the Great Recession, more people started buying used cars, while people who owned newer started holding onto them longer, diminishing the stock of available used cars. Meanwhile, fewer people bought new cars, motivating dealers with a surplus of new cars to lower prices and offer better incentives.
In today’s market, the price difference between a used and new car might not be as drastic, meaning the better deal might be to buy a less expensive new car rather than a nicer used one.
Buying used
The biggest benefit to buying a used car is simply the price. A new car loses anywhere from 20 to 40 percent of its value after the first year alone though it may still run like new. Cars always depreciate in value regardless of condition, so if you can find a used car in good condition, you can score major savings.
On the downside, you don’t really know how that car has been treated. It may have been treated well, it may have been treated badly. You’re taking a chance.
You can diminish that risk by taking an extensive look at the vehicle’s history report through state records or the more comprehensive Carfax report. Have your own mechanic take a look at the vehicle if possible, to make sure it runs smoothly and the dealer or seller is disclosing everything.
You can also look for a certified used or pre-owned vehicle. Certified pre-owned cars have been through a special inspection process and are up to the manufacturer’s standard. They often come with a warranty as well. While these may be more expensive and harder to find, they can offer more peace of mind.
Also keep in mind that you may pay higher interest rates on financing a used car over a new car, but you will pay lower insurance rates. Sometimes these can be the tipping point when deciding between a new and used car, other times they may offer limited savings.
Buying new
Buying new means you will pay more upfront, but you could wind up paying less over time because your car won’t require immediate, more expensive repairs. A used car may need new brakes months after driving it off the lot and if the used price doesn’t offer significant enough savings over the new, you might spend more in repairs than you saved on the buying price.
If you do need to make repairs, your warranty will likely cover most of them. New cars come with more extensive warranties than used ones, which can include regular maintenance. If you budget well and maintain your car properly according to the owners manual, you can wind up getting more miles out of a new car than a used one simply because you treated it better.
Ultimately though, each car is different. Some models are priced higher used than other used cars because they have a good reputation. Some models depreciate faster, need more repairs or have parts that are hard to find. Pick out a model you like and do some comparison shopping.