Car, truck, and SUV shopping is a reality for most everyone. With so many options out there, it can be confusing and even a bit overwhelming when trying to decide not just what make and model to buy, but whether it’s better to buy it new or used.
Here we break down the advantages, and disadvantages, of both so you can make the best decision for you.
Advantages of Buying New
Customization:One of the most appealing aspects of buying a new vehicle are the customization options, with many vehicle manufacturers giving consumers options from paint color down to the speakers and navigation systems. For a truly custom vehicle that has all the features you want, it’s much easier to find in a new car over used.
Features: Speaking of features, vehicles have never been as advanced as they are today. From fuel efficiency to body design to safety measures and technology, the most cutting-edge models are often the most recent releases.
However, modernization is no substitution for reliability. That relative that has been buying the same type of car or truck for decades? Well, there may be good reason for that. No amount of self-driving or backup camera technology can take the place of good old-fashioned structural soundness and reliable engineering.
Easier shopping: You’d be hard pressed to find anyone who can honestly say they enjoy vehicle shopping – it’s not the most fun activity for many. That said, purchasing a new vehicle – whether online or at a local dealership – is typically easier and much more straight-forward than buying used, especially if you already know the make or model you want.
Buying new also provides peace of mind that you just can’t match with a used vehicle. With warranties and guarantees often included, you don’t have to worry about undisclosed repairs, problems, wrecks or shady private sellers. Assuming you’ve researched the vehicle type itself - which you should always do before purchasing any vehicle - you know what you’re getting yourself into since you’re the first owner.
Advantages of Buying Used
Purchase Price: This is perhaps the most obvious advantage of buying a used vehicle, but it’s still extremely important to consider. You can shave thousands of dollars off the purchase price of most any vehicle simply by buying used.
This doesn’t mean you have to buy a hunk of junk from the ‘90s either – even a vehicle just a few years old can save you a significant amount. As with any major purchase, make sure you calculate your budget ahead of time and stick to it whether you intend to take out an auto loan and make payments or just buy it outright. This ensures you stay within the limits of what you or your household can reasonably afford without sacrificing in other areas.
Depreciation Rate: You’ve heard the saying that your car loses value the moment you drive it off the lot? Unfortunately for our wallet, that’s quite true. Most experts estimate a 20% depreciation rate as soon as you purchase a car and the steepest depreciation in value occurs in the first three years. Here’s an example illustration assuming you buy a brand-new car versus the same car three years after its release:
As you can see, there is a $15,000 difference due solely to depreciation when you purchase the same vehicle just a few years later.
Cost of Insurance: One of the factors in how auto insurance rates are calculated is the year the vehicle was made. In general, the older the vehicle the lower the insurance rate. Don’t forget to factor in insurance costs when budgeting for your next auto purchase.
Vehicle Shopping Tips
Whether you’re looking to buy used or new, here are some helpful tips when shopping for any vehicle:
Sites such as Kelley Blue Book provide easy-to-understand valuations so you can ensure the price you pay is fair. It’s also helpful later if you choose to sell your car so you can take some of the guesswork out of asking price.
Budget: Yes, we said this earlier, but it’s so important it’s worth mentioning twice. Many people simply can’t afford to pay for a vehicle outright and need an auto loan – and that’s OK! But what isn’t OK is falling down the slippery slope of debt by biting off more than you can chew with an overambitious monthly payment.
Figure out what dollar amount you can realistically afford each month and make sure you keep that top of mind when shopping. Luxury is great, but not at the expense of groceries or a mortgage payment.
Be Selective with Add-Ons: Many sellers, particularly at large dealerships, will try to upsell a vehicle with lots of add-on options such as warranties and extra insurance. Some of these are well-worth the extra spend, but some are often unnecessary.
Consider your specific situation before agreeing to anything extra. Remember, ask questions if you don’t understand something! That’s what the salespeople are there for and it’s much better to make an informed decision than sign up and pay for something you don’t actually want or need.
The Bottom Line
There are clear advantages and disadvantages to buying both used and new vehicles. It may come down to what your household can afford or what features are most important to you and your family. With a little research and proper budgeting, you’re sure to find the right set of wheels whether they’re brand new or just new to you.
Have a first-time driver ready to get behind the wheel? Check out our student page where we break down important financial terms and have an entire section dedicated to everything you need to know about auto loans.
OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.
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