It’s a decision that every car buyer must make: Should I buy a new or used car?
There are a lot of good, strong arguments to go one way or the other. New cars certainly have more allure because they are the latest products with the coolest new features. But used cars can offer more value to budget-conscious shoppers who want to get the best deal.
In this post, we’ll explore the top five factors you should consider before buying new or used, and then give you our recommendations for each factor as to which option is the best bang for your buck.
Lowest Depreciation: Used Cars
Perhaps one of the biggest challenges to any car value is the phenomenon of depreciation. Depreciation is the loss in the perceived value of something as it naturally ages and gets used up over time.
As much as some people love their cars, the fact remains that it’s just a collection of metal and parts. Like any other piece of equipment, everything inside your car is going to work for a certain amount of time before it eventually either needs to be serviced or replaced altogether. It’s because of this that the older a vehicle gets and the more used it becomes, the lower its perceived value will reduce.
To give you some idea of just how drastically this occurs, consider the following example:
- You sign the papers on a new $30,000 vehicle
- As soon as you drive it off the lot, the vehicle will lose 9–11 percent of its value. In this example, you just lost $3,000 within ten minutes.
- After one year, the vehicle will have lost 20 percent of its original value. That’s a loss of $6,000.
- For every year between the 1- and 5-year mark, the vehicle will lose another 15 to 25 percent per year. That means your $30,000 vehicle will now be worth only about $12,000. That’s a huge decline!
After the 5-year mark, the depreciation rate of most vehicles will begin to taper off. They will still decrease in value, but nearly as rapidly year over year.
This means that if you’re looking for a deal, then buying a vehicle after it has already depreciated 3 to 4 years will most likely give you the most optimal entrance point between value and affordability.
Why Does a Car Depreciate So Fast?
- Status – A vehicle goes from “Brand New” to “Used” the second you sign the papers. Like it or not, this will change the perception of your vehicle to some buyers and make it harder to resell.
- Newer models – The automakers are replacing their vehicle lines every year. What used to be the “latest model” will quickly become yesterday’s news.
- Mileage – A car’s lifespan is generally measured by its mileage. Therefore, the more miles you have, the less life it has to live and the lower its perceived value.
- Condition – The more wear and tear you put on a vehicle, the less desirable it will be to someone else.
- Changing customer preferences – Customers are fickle and change their minds all the time about what they want in a vehicle (curved vs boxy, small vs large, etc.). Again, what the public asked for 3-5 years may no longer be wanted.
Price Point: Used Cars
Knowing what a huge role depreciation plays in the value of a car, it’s no surprise then that a used car is going to have a much cheaper sticker price than a new car. This can be very important to shoppers who are on a budget or want to maximize the value of their investment.
To put into perspective just how much less a used vehicle sells than a new vehicle, consider this example from Edmunds:
- New compact SUV price: $28,633
- 3- or 4-year-old compact SUV: $19,331
As long as you’re willing to accept a car that is a few years old and has already accumulated some mileage, you can easily buy a used vehicle for 33 percent less than buying it new.
Lower Insurance Premiums: Used Cars
Because used vehicle prices are naturally cheaper, the insurance premiums will also cost less. But sticker price isn’t the only reason.
After vehicles have been on the market for a few years, parts become easier and cheaper to find. Aftermarket manufacturers will start producing copies of the original parts, and that can make them much cheaper to fix in the case of an accident. Insurance companies will consider this when they’re formulating their calculations.
Lasts Longer: New Cars
Again, a car is like any other piece of equipment. The more you take care of it with regular inspections and maintenance, the longer it will last.
How long can you expect? Rich White, the executive director of the nonprofit Car Care Council, says that “A typical passenger car should last 200,000 miles or more”
By that figure, if you buy a used car that already has 50,000 miles on it, then it theoretically has already lost 25 percent of its foreseeable usage.
The other gamble is that you might not be able to tell if that vehicle was serviced during those first 50,000 miles. Some companies like Carfax collect this information to sell to consumers, but the data is only available if the service was done at a registered service center. Therefore, by buying used, you may end up risking that there isn’t an underlying problem that was ignored by the previous owner.
Better Features: New Car
Let’s be honest – there’s nothing like sitting inside a new car for the first time! The smell, look, feel … all the things that make the latest car models so desirable – even when compared to models from a year or two ago.
Because technology keeps evolving so rapidly, you’ll also quickly notice that used cars aren’t always up to the latest entertainment standards. Slick features like touch screens and Bluetooth connectivity may not be as good or even present at all in older vehicles.
Behind the scenes, a new car is also going to be produced with the latest safety features. Federal laws are always being updated to ensure better ways of keeping you safe. The only way to have a vehicle with the latest safety countermeasures is to drive the latest models.
Whether you’re trying to save up for a new or used car, you’re going to need to watch your budget so that you’ll have enough money to finance the purchase. This is where an app like Buxfer can help.
Buxfer automatically lets you sync to your bank and credit card accounts so that you’ll always know in real-time if you’re on track. You can also set customized limits for yourself so that you’ll know if you’ve exceeded your budget for the month.
Click here to find out more about Buxfer Budgets.
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