by Jennifer McDermott
Purchasing a vehicle is a very exciting financial milestone in anyone’s life. It’s a symbol of independence and lifestyle. The tricky question to ask yourself is: should you buy new or used? Both have their pros and cons when it comes to cost, reliability, warranty, and rates (just to name a few!), so how do you determine which will really fare best value?
Here are my tips on what you should consider when deciding whether to buy new or used.
Consider Safety and Reliability
Aside from cost, the safety and reliability of your vehicle should be at the forefront of your mind. What’s the point in investing in something that’s a) not going to last, or b) could be a detriment to your wellbeing?
The benefit of a new vehicle is that they incorporate the latest tech and safety features. For example, it is now mandatory for all cars sold in the U.S. to have some form of tire pressure monitoring, whereas older vehicles may not have these features. This is incredibly important if you’re new to the road or simply a cautious driver.
In terms of reliability, tech incorporated into new cars often have enhanced fuel efficiency, and reduced service and maintenance costs (however, it’s important to note that these can sometimes come in the form of expensive add-ons). If considering a used car, it’s also paramount that you obtain the car’s history. If the deal sounds too good to be true, it probably is.
Compare Loan Providers
As with any expensive purchase, you might need some extra help financing in the beginning. However, with so many auto loan providers available with varying rates and fees, it can be difficult to know where to begin. It’s a great idea to start by comparing providers to find the right financing option to suit your needs.
The next step is to consider how much the loan would cost for a new car or a used car. The average auto loan rate for a new car sits at 4.74% and 8.50% for a used car, with an average loan term of 68 months for a new vehicle and 63 for a used vehicle. If we then look at the average cost of a new vehicle ($36,400), against a used car ($19,232), when factoring in total interest, the interest for a new car only totals to $502 more than a used car. Although this is only an example, it pays to conduct a proper analysis when weighing up your options to be sure that you’re making the right decision.
Factor in Depreciation
Once you drive that brand new car out of the lot, it’s already lost value. It’s not ideal, but that’s just how it is. New cars lose their value quickly – a significant proportion within the first few years alone. If you’re worried about losing value on your investment, the good news is that with a used car, depreciation is slower. The dramatic loss has already occurred, which is what makes them a cheaper purchase in the first place.
With used cars, you don’t need to be concerned about immediate depreciation after your purchase. In terms of physical dings and dents, you’ll stress less about them with a used car, as it’s likely that the first (or even second) car-owner added some character already.
When it comes to insurance rates, there are pros and cons no matter which way you look at it. If you’re considering a new car, insurance may actually be cheaper due to enhanced safety features, therefore lowering the rates. However, as it’s a newer vehicle, and therefore more desirable to thieves and vandals, insurance rates are often driven up higher.
That being said, it really does depend on the situation. For example, older vehicles are often targeted as they lack the modern anti-theft devices as featured in newer models. This makes them an easier target. However, if taking the used car route, insurance rates are usually reduced to accommodate the lower value of the vehicle.
When it comes to insurance, the amount you get covered for is ultimately up to you, to an extent. Although liability insurance is required more often than not, you can always opt for additional extras, like collision insurance, or comprehensive auto insurance, covering things like vandalism and damage not related to an in-car accident.
So, Which Route?
Deciding whether to opt for a new or a used car is sometimes a tricky decision, and there is no definitive answer. It depends entirely on the situation – the model, the make, the optional extras, the rates and fees at the time… there are so many factors. However, if you do your research, compare the options available to you, and most importantly, trust your gut, you’re sure to feel great about reaching this financial milestone!
Jennifer McDermott is Consumer Advocate at personal finance comparison website finder.com. She has more than 12 years’ experience under her belt in the finance, lifestyle and travel industries where she’s analyzed consumer trends. Jennifer loves to uncover interesting insights and issues to help people find better.