It’s the age-old question that every car buyer needs to decide: Should I buy a new or used car? A new car won’t have the same risk or wear and tear as a used car, but it’ll cost you more.
New vs. used cars in a nutshell
Generally costs more and depreciates immediately
Generally costs less and retains its value longer
Lots of options that you can customize to your needs
You’ll face a limited selection depending on your location
What you need to know
Know how to avoid expensive sales tactics
Know what to look for in a used car and how to avoid a lemon
More options with lower interest rates
Fewer options with higher interest rates and more stringent requirements
Manufacturer stickers, dealer documentation and up-to-date reports
Typically general information only, and private sales may have none
Manufacturer and dealer warranties are available
Varies depending on the age and condition of the car
Financing options for new and used cars
New and used cars typically have the same financing option: car loans. Most lenders offer both to cover a range of buyers, but there can be a difference in rates and terms.
If you have decent credit and are looking to buy a new car, you’ll be given a lower interest rate than someone looking to finance a used car. But because new cars cost more, you may not actually save money. A used car may have a higher interest rate, but you’ll likely be paying significantly less than you would for a new car. The downside? Some lenders only finance used cars under a specific amount of miles or age.
However, you aren’t limited to just car loans. An unsecured personal loan could help you finance car without using it as collateral. However, these tend to have higher APRs and lower maximum borrowing amounts than car loans.
What factors should I consider between new and used cars?
Before you jump into your next ride, consider a few factors to help you decide whether a new or used car is best for you.
The price difference between a new and used car depends on the age, model and condition of the car. The easiest way to see how much you’re saving by buying used is to compare how much a new model would cost.
Most cars depreciate by almost 20% as soon as they’re driven off the lot. So if a used car is in near-perfect condition, it shouldn’t cost more than 20% of a new model. Since the average cost of a new car is around $30,000, you can generally save at least $6,000 buying used. But these savings come with a price. You’ll never know the full history of a used car, and you won’t be able to customize the features.
Don’t underestimate the importance of a manufacturer and dealer warranty. It makes a difference when you’re choosing between a used or new car. New cars come with a warranty that guarantees reliability and performance. Many manufacturers have car warranties of three to five years or 36,000 to 60,000 miles. These can also extend to used cars — but it will depend on the manufacturer’s policy.
Older used cars won’t be covered by a warranty, which can make them a risky option. Base your decision on the age of the car, its condition, history and reports on reliability. These should guide you when you’re choosing between a few older vehicles. However, if the original owner purchased an extended warranty, then this could be included in the price of a used car. Always check the warranty documentation to make sure.
With used cars, you’ll be limited to what’s on the lot. For example, you might find the right model in the wrong color or without a bluetooth option. And while you could change it, it may cost more.
On the other hand, opting for an new car provides you with more consistency. If you can’t find exactly what you want on the lot, you can order it. Some manufacturers allow you to build the exact car you’re looking for on their website. This can get pricey, though.
Every car requires the same general maintenance: oil changes, regular mechanic visits and tire rotations are the most common. That being said, there’s no guarantee the previous owner of a used car performed any maintenance.
If you want to be sure your car is in tip-top shape, go with a new car. And if that isn’t in the budget, consider opting for a car that’s been leased or owned by a rental service, since these likely will have been better maintained.
A new car will have up-to-date safety ratings, and you’ll know that it’s been in no major accidents that impact its reliability. If you’re not a car person, you can avoid the hassle of inspecting a used car and hoping the car history is accurate when you buy new, but you’ll still be paying a premium for the lack of wear and tear.
Used cars will naturally have a little bit of road damage and some dings, even if you’re looking at a newer model with low mileage. Fortunately, you can find some tips on how to buy a used car to make the buying process easier.
There are plenty of used cars with a detailed maintenance and repair history, but they might also be fraught with problems you won’t notice until later. When buying a used car, get a car history check completed before finalizing your purchase. A history report should highlight any outstanding financing and service history, including if it’s sustained any damage in an accident.
How does depreciation impact my choice?
Depreciation can be the bane of a new car owner’s existence — but used car owners also need to account for it. Basically, depreciation occurs when your car loses value after you first purchase it. The act of changing hands between a dealership and a buyer or between two buyers will lead to your car being worth less, which means you could quickly become upside down on a loan.
How hard depreciation hits you depends on the car you buy. A new car typically loses 20% of its value the moment you drive it off the lot. For the average $30,000 car, this will decrease its value to just $24,000 if you sold it on the same day. And the longer you drive a car, the more it depreciates. Mileage, wear and tear and other mechanical issues could further decrease your new car’s value, making it that much harder to make back your money when you sell it.
Used cars also depreciate, but at a much slower rate. Because the majority of depreciation has already occurred, you may only see your car drop in value by a few thousand dollars before you sell it. This is why many people consider a used car to be a better deal. But just like with new cars, any mechanical issues or excessive mileage could quickly diminish your car’s value, which will make it more difficult to sell for a good price.
Used cars are considerably cheaper, but you’re not getting the first-owner benefits that come with a new car. Whichever you decide, compare your car loan options before hitting the dealership to ensure you’re getting the best deal available to you.
Frequently asked questions
Yes. You can take out an unsecured personal loan for your next car. They’re considerably more flexible, and you can find lenders just about anywhere. But they tend to come with higher rates than car loans since they pose more of a risk to the lender. Read our article on how car loans compare to personal loans before making a decision.
The most commonly cited budget for buying and maintaining a car is 10% to 15% of your annual take-home pay. This percentage includes your monthly loan payment, normal expenses like gas and unexpected expenses like maintenance. Check out these tips for buying a new car to learn more.
They will likely increase because of the purchase of a vehicle, whether it’s new or used. The actual insurance quote you receive will depend on your driving history and the car you buy.
Yes. Since you’re not buying something right off the manufacturing line, you’ll want to have the car inspected by a professional and licensed mechanic before you finalize your purchase. If the mechanic finds any problems that don’t make the car undrivable, you can use this to negotiate the purchase price.
Kellye Guinan is a seasoned financial writer with over 500 articles under her belt spanning all things loans from auto to personal to business and everything in between. With four years in the field and five years of research experience, she's able to make complex personal finance decisions easier for anyone to tackle. When she's not up to her knees learning about the latest trends in lending, she spends her time improving her own financial literacy and expertise — and maintaining a Duolingo streak of over 1,300 days.
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