One of the first decisions you’ll make before buying a car is whether you’ll choose to look at new or used vehicles. New cars and used cars both offer certain advantages to buyers, and which is better for you at the time of your search is a unique decision based on both your own desires as well as your financial capability. Your credit can also play a role in determining whether you should buy new or used, since available capital and financing rates depend largely on your credit score.
Many buyers look to finance the purchase of their vehicle whether new or used, as even used cars typically cost tens of thousands of dollars. If you’re not in a position to pay cash for your car in full, you may need to apply for a car loan from either the dealer or an outside financial institution. As with most loans, the higher your credit score, the lower the interest rate you can generally get on a car loan.
One of the advantages of financing a new vehicle, says Car and Driver, is that you can usually get a lower interest rate than on a used car loan. This is because new vehicles haven’t been hit with depreciation – yet – but the second they leave the lot, the car will start depreciating. However, a new car will also generally cost you more over time simply due to the higher cost hit upfront.
When you buy a new car, you can potentially get it just the way you want it—it’s a chief advantage of buying a new vehicle. If you’re a patient buyer, you can custom order the vehicle with all factory options to your exact specifications. If you’re in more of a hurry, you can list your desired build and email dealers to see if your desired car already exists on a lot. If not, dealers can often locate a car very similar to your request and secure it for you. With a used car, you’ll have to choose from vehicles that are currently available in the marketplace. This means you may have to compromise on one or more factors that define your ideal vehicle, like color, drivetrain or interior options.
Warranty and Maintenance
According to Kelly Blue Book, the warranty that accompanies many new cars offers peace of mind that you can’t generally match when you buy a used car. Manufacturers offer warranties of between three and 10 years on new cars, during which time you may only be liable only for “wear and tear” items such as tires and brakes. With a used car, you’ll generally have only a short bit of warranty left—or possibly none at all. When the warranty expires you’ll be responsible for all repair costs, which generally grow as a car ages. These expenses can eventually outweigh the lower cost you originally paid for the car.
Depreciation is perhaps the most significant negative factor in buying a new car versus a used one. New cars typically lose 25 to 45 percent of their value in the first few years of ownership—with a major chunk disappearing as soon as they drive off the lot. If you can wait out those first few years and buy used, the first buyer will have absorbed the majority of the car’s depreciation and sorted out any early settling-in service issues. In terms of absolute price, you can often get a good deal on a car that’s just a few years old.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.