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Key takeaways:
- Your decision on whether to buy a new or used car depends on several factors; it’s smart to look at both options because each has tradeoffs
- Consider your budget, both for the upfront price as well as the ongoing expenses for insurance, licensing, gas, and maintenance
- Also take a close look at what you need from the vehicle in terms of safety, reliability, warranty protection, and fuel economy
Shopping for a new ride? Buying a car is a big financial commitment. One of the biggest decisions you’ll need to make is whether to buy a new or used vehicle. Each has its own financial pros and cons, from initial price, financing, and cost of insurance to operating costs and maintenance requirements.
The secret is finding what works best for you and your budget.
Buying a new vs. used car: factors to consider
Here’s what to consider when deciding whether to buy a used or a new car.
1. Depreciation
Depreciation describes an item’s reduction in value over time. Like other assets, all cars depreciate, but new cars often depreciate at a faster rate, which means their value will likely drop faster than that of a used vehicle in the first year of ownership.
Buying a new car means shouldering depreciation costs, whereas buying a used car assumes that the substantial initial depreciation has already been accounted for. Depreciation carries more weight for individuals who prefer upgrading their cars every two years, as opposed to those who plan to own and drive their vehicle for an extended period.
2. Reliability risk
You count on your car to start every morning and safely get you from point A to B, so a car that doesn’t run reliably can be a big, expensive inconvenience. Over the past couple of decades, vehicles have become much more reliable, and while some people think used cars have more reliability issues, many used vehicles can be just as dependable than new ones. That said, since used cars are older and have more mileage, they tend to require more repairs. If you need your car to drive kids to school or if you drive long distances in remote locations, reliability can be a more important consideration than if you use your vehicle in a town with backup transportation options.
3. Safety features and fuel efficiency
Newer cars often take the lead here; auto manufacturers are doing a good job developing ways to keep drivers and passengers safe. From backup cameras and Bluetooth connections for hands-free driving, to blind spot monitors and collision warning, new cars come with a lot of handy gadgets. Sometimes, it takes driving a car with these features to help you truly appreciate the value they provide. And when it’s time to fill up, know that new cars are, almost across the board, more fuel-efficient than used. Take a close look at the type of driving you do to see if the higher cost of a new vehicle will pay off in terms of safety and fuel economy.
4. Maintenance needs
Cars require more care as they get older and as they accumulate more mileage. You’ll see this reflected in the price of used cars; vehicles with higher mileage generally cost less because they’ll need more in terms of maintenance and repairs. Additionally, dealerships often include one to two years of free maintenance with the sale of a new vehicle, however maintenance coverage can be available for an additional cost on a used vehicle.
5. Warranty protection
Generally, a new car comes with a three-year bumper-to-bumper warranty; this is included in the price of the car. Although some car dealers offer limited warranties for a used vehicle (typically for the vehicle’s drivetrain or on what’s known as a ‘certified pre-owned vehicle’), it’s not something that you can count on, which means you may need to purchase coverage or go without warranty protection with a used vehicle.
6. Cost to insure
Your cost of car insurance depends on many factors—not only your age, skills as a driver, and safety record, but also on the value and age of your vehicle. Typically, used vehicles cost less to insure because they’ll cost less to replace in case of an accident. Older cars also usually cost less in terms of taxes and registration or licensing fees as well.
Final thoughts
Your decision on whether to buy a new or used car depends on a lot of things. Certainly, price and budget are important, but you must also consider what you need from a vehicle in terms of safety features, fuel efficiency, reliability, maintenance, and more.
If you’re on a budget, you can save up front by buying a used car—you’ll also save with lower insurance, taxes, and licensing—but you’ll pay more for maintenance and repairs. A new car should be safe and reliable, and it could be years before you need to pay for a major service. Regardless of what you decide, research the car’s value so that you can negotiate the best deal possible before you hit the road in your new (to you) car.
