Whether you’re looking at buying your first car or replacing a previous vehicle, there’s one decision you need to make right away: new car vs used car? That one decision will determine, to a large degree, where and how you shop for your vehicle.
New Car vs Used Car Factors to Consider:
While the financial factor of this decision isn’t the only thing to consider, it is a significant factor. Here are some of the basic financial assumptions involved in buying a car:
- A new car will cost more than a used car. The sticker price on two comparable vehicles, one new and one used, will vary significantly. A new car loses as much as 40% of its value in the first three years (about 15% of that in the first year), and you can expect to pay even less for an older car.
- You may need to finance the purchase. Most people need to take out a car loan in order to buy a car of any sort, but this is especially true for a new car. A higher purchase price means you’re probably less able to pay for the vehicle out of pocket. If you can find an affordable auto loan by doing some research on the Internet.
- The monthly payment, duration of the loan or both will be larger on a new car. Here’s something that people often miss in the car financing process: your monthly payment could very well be the same on a new car as it is on a used car, even if the sticker price is higher. It also means you’re usually looking at a longer loan term (e.g. a 3-year loan for a used car vs. a 5-year loan for a new car).
- Maintenance costs will vary greatly between a new and used car. Used cars require greater amounts of maintenance and repairs. New cars are provided with a warranty by the manufacturer for a specific duration, meaning you’ll pay very little beyond the cost of regular oil changes. If the transmission fails in a new car, the manufacturer will fix it, costing you nothing. If the transmission fails in a used car, you’re looking at a repair bill in the thousands of dollars.
- You’ll need to carry more insurance coverage on a new car. If you finance the purchase of the vehicle, the lender will make full insurance coverage mandatory. Even if you don’t finance the purchase, you’ll probably want to protect your investment by carrying full coverage. In addition, older cars tend to have lower insurance costs, even for comparable coverage. If you would like an insurance plan that fits your budget, visit places like Progressive.com or Statefarm.com.
These are the basic facts you’re going to face. As you can see, there’s not necessarily a clear advantage between a new car vs used car. You may be able to own a new vehicle while making the same monthly payment as you would a used vehicle, but not have to worry about repairs. On the other hand, you could buy a used vehicle with cash and save significantly on insurance costs and have no monthly payment at all. Whichever you choose, always make sure to ask these questions to yourself, before you start shopping.
Ultimately, it depends on what your financial priorities are in relation to your vehicle. There are three questions you need to ask yourself:
- Is my vehicle an investment? If you want to be able to sell your vehicle in a few years and have the vehicle maintain its value or loose as little value as possible, you’ll want to avoid a brand new car. Look for a used car in the 3-4 year old range.
- Does my budget allow for varying monthly costs? Your used vehicle could cost you nothing one month and $1,500 the next. If you need a guaranteed stable cost, new is probably the better way to go.
- How important is the financial aspect to me? If money isn’t really a big concern, you’ll move on right away to choosing the car you want – whether it’s new or used.
Answer these questions and you’re well on your way to deciding between a new car vs used car.
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