Deciding whether to purchase a new or used car can be stressful, so it is important to distinguish which one will be better for your situation.
Buying a car is a big purchase, so you want to make sure that you know exactly what you need, and more importantly what you can afford. The last thing you need in your life is another stressful monthly payment hanging over your head.
Obviously, there are advantages and disadvantages to each, so let's review them and decide which will suit you better.
Keep in mind 2020-2022 has been an anomaly to the car market due to covid, so some of this advice may not line up with how the market usually is. There was a massive Chip shortage which has led to an increase in both used and new car prices, but eventually we should see things go back to normal.
Advantages to Buying a Used Car
If you're looking for a more affordable vehicle, then buying a used car may be the route you want to take.
Vehicles typically depreciate in value, meaning that their initial price will eventually decrease over time. In fact, many experts estimate that a new car loses 20% to 30% in value as soon as someone drives it off the lot.
If you're someone who is trying to avoid debt, buying a used car is perfect because most sellers are looking to sell their vehicle peer-to-peer for cash instead of selling it back to a dealership.
Along with this, you avoid any long-term loans with the bank or the dealership itself when buying used. Yes, there are obviously used car dealerships that also offer financing options, but the monthly payments and interest rates will usually depend on your credit score.
Whatever you do, make sure you avoid high-interest rates and stay within your budget. New cars can be tempting, but you don't want to end up stressing out over that car payment if you cant afford it.
Most of the time used vehicles are cheaper to insure due to the depreciation factor. Most dealerships require you to have full insurance on your vehicle if you are financing it, but this isn't always the case with used.
If you buy a used vehicle you can choose to have full coverage or just general liability. Most people choose general liability because it wouldn't be worth it to fully cover the car due to the lower value. However, this varies depending on how many miles are on the vehicle and what condition it is in.
Whichever you choose, generally both are usually cheaper with a used vehicle.
Just be mindful that if you only have general liability that the insurance company wouldn't cover your vehicle if some random accident happened to it, such as a tree branch falling on it, or you hitting a curb.
(Take time to do your research on the various insurance companies.)
By buying a used car you save more money in multiple ways.
Less Stress About Looks
When buying used, keep in mind that there is most likely going to be a few dings, scratches, and small dents here or there. With that being said, you don't have to stress over keeping your car in the best shape all the time.
If you are someone who doesn't really care about looks then this is a good option for you.
Plus, since this car was already purchased as used, the small defects shouldn't have much of an effect on the resale value if you choose to sell it again.
Disadvantages to Buying a Used Car
Not as Reliable
While buying a used car is more affordable you have to keep in mind that it is riskier than buying a new one.
Most new cars are sold in "as-is" condition and you don't truly know how the previous owner treated them. Used cars also have higher mileage.
Along with this, most used cars don't have a warranty anymore, so if someone goes wrong you are fully responsible for it.
Keep in mind that you may have to spend a few extra dollars once you purchase a vehicle second-hand. My advice is to bring a mechanic friend with you if you have one.
If you don't have a mechanic friend, ask as many questions about the vehicle as possible and how long the person had it for. See if you can do a CarFax as well.
If you are buying a used car from a dealership, ask why the vehicle was traded in.
When buying used, you are probably going to have to compromise on some of the car's features, such as car color or interior style.
It is going to be hard to find a specific style or specific feature when it comes to used cars. It is more important to focus on mileage and overall condition rather than the color or radio features.
You don't want to end up breaking down on the side of the road because you liked red better than blue. Buy a car that is safe and reliable.
People who are looking to finance a used car usually aren't in the best financial situation and dealerships will protect themselves with higher interest rates.
You need to make sure that your credit history and credit score are good so you can get an affordable monthly payment.
Advantages to Buying a New Car
A lot of people love the feeling that a new car brings, so if it fits into your financial goals then why not get that new ride!
If you're buying new instead of used, it is important to figure out what works for you financially so you can enjoy your new set of wheels without all the stress.
A new car has no vehicle history. You are the first owner of the vehicle, so you don't have to worry about how the previous owner treated the car...cause there wasn't one!
You don't have to think about when the last oil change was, if the brakes have been replaced, or if it was in an accident. You have all the knowledge from the dealership when you purchase the vehicle.
Along with this, new cars also have the most up-to-date technology. Whether you are looking for the best safety features for your family, or you are looking for something a bit more eco-friendly, the new car market will give you tons of options to choose from.
Most dealerships will also offer you some type of warranty. This will vary depending on which car you buy, but most issues will typically be covered by the dealership for the first few years.
It's easier to shop for a new car because of all the options available to choose from.
If you're looking for certain features, the new car market will give you a larger variety to choose from.
All the vehicles are in perfect condition and reliable, so if you know what you are looking for you will most likely have no trouble finding it.
If you have a good credit score you will most likely be able to receive better financing options from lenders.
Lenders take into consideration your credit history and the value of the vehicle being purchased. Since a new car's value is known to the lenders, it is cheaper to finance.
New car buyers are also seen as less of a risk to the lenders when it comes to paying back loans, so this is why you will see them with lower interest rates.
Disadvantages to Buying a New Car
The obvious one here is that buying new compared to used is a lot more expensive. Buying a new car is going to require financing, so you're going to have to take on monthly payments and pay more in interest over time.
Newer cars also require more expensive maintenance, especially if you get a luxury vehicle, so keep that in mind as well.
Buying a car through a dealership leaves you less negotiating room as well. When you buy used, you can usually get a deal because you are paying with cash.
It is much harder to negotiate a good deal with the dealership. Along with this, you have to pay sales tax when purchasing a vehicle. A new car is going to have a higher sales tax than a used one.
As I mentioned earlier, insuring a new vehicle is typically much higher than insuring a used vehicle. Most dealerships require you to have full insurance on your vehicle if you are financing it and the replacement values are higher.
New Car = Higher Insurance
The unfortunate reality of purchasing a new car is that it will eventually become a used car.
The minute you purchase a new car and drive it off the lot is the exact moment where it begins to lose value. As mentioned earlier, experts say that a car loses 20% to 30% of its initial value as soon as it leaves the dealership.
Unless you are super careful and extremely lucky, it is only a matter of time before your car receives its first ding and gets its first carpet stain.
New or Used Car?
If you plan on purchasing a new car, do the math and make sure you can afford those monthly payments. Keep in mind that your career or job could always change, but the lender is still going to want their money regardless of what your situation is.
Be mindful of all the expenses you are going to take on with the responsibility of owning a new car.
Buying a used car can be more beneficial financially, but you also don't want to get stuck with a piece of crap that you have to keep pouring money into.
Being too cheap usually winds up being the most expensive and you don't want to end up broke.
Everyone's situation is different, so take a look at the pros and cons of both before you make that important decision.