Trying to decide whether to buy a new or used car may be one of the most perplexing decisions of buying a car. Below are some pros and cons for both which might help you decide which one will work best for you.
New Car - Pros
New Car Smell
– It may not be easy to quantify, but the satisfaction we all get out of having a brand new car with clean tires, a steadily purring engine, a sharp look, and a new car smell (rather than the smell of old pop tarts and french-fries) is a benefit to buying a new car which must be taken into account.
– As mentioned previously, Warranties typically come with new cars, but there are different types of Warranties. Bumper to Bumper Warranties
cover the entire car with exception of wear items (such as glass, interior trim, seating fabrics, and cabin surfaces), the actual bumpers, and a few other items. Powertrain Warranties
typically last longer than Bumper to Bumper Warranties, but only cover the engine, transmission, and other parts related to the car’s propulsion system.
Higher Resale Value
– Buying a new car and then reselling it after 5 years will more often than not earn you more money than buying a 3 year old car and then reselling it after 5 years (because it is now 8 years old and very likely has more damage, more miles, and a greater likelihood of requiring regular maintenance).
New Car - Cons
Higher Purchase Price
– New cars almost always cost more than used cars. Why? Among other things, it’s because new cars have new features, a new warranty, no damage, and a greater likelihood of going longer before requiring costly maintenance.
Higher Insurance Coverage
– New cars often come with new safety features which might help to reduce your insurance costs, but at the same time, because they are new cars and will cost more for your insurance company to replace, buying a new car could increase your insurance costs.
– As stated previously, new cars depreciate significantly within the first 3 to 5 years of their life. They even lose value the moment you drive off of the dealership lot. As a result, buying a new car and then re-selling it within the first 3-5 years can cause you to take a heavy loss if you owe more on your car loan than the car is worth (which is common in those early years of a car’s life).
Used Car – Pros
Certified Pre-Owned Car Warranties
– Some used cars are sold with Certified Pre-Owned (CPO) Car Warranties
which are new Warranties for used cars which have been inspected and confirmed to be in good enough shape to warrant a new Warranty. Typically, CPO cars are newer (ex. less than 5 years old) and have not reached a certain number of miles yet (ex. less than 75,000 miles). CPO Warranties can be provided by a manufacturer (which is best) or a dealership such as an independent used car dealership (which may not do its own repairs). Make sure you know who is providing the CPO Warranty.
Lower Sales Tax
– When you buy a car, new or used, you have to pay sales tax. In Texas, sales tax is 6.25% of the sales price (or the standard presumptive value of the car; whichever is highest). Since used cars typically have a lower sales price than a new car, you typically pay less sales tax as a result.
Used Car – Cons
Financed at Higher Rates
– Interest rates for used car loans are typically higher than for new car loans for several reasons; here are a few.
Higher Maintenance Costs
- Lenders can better predict the future resale value of a new car than a used car, and this puts them more at risk for a loss on used cars. They make up for this risk by increasing the used car loan’s interest rate.
- Many automakers own new car lenders and they want you to buy a new car, and so they offer an incentive through reduced interest rates on a new car loans.
- More often than not, people who buy used cars have lower credit scores than those who buy new cars, resulting in higher used car loan interest rates.
– As cars age and take on more miles, their parts begin to degrade and maintenance becomes required more and more often. So, if you buy a used car that’s 5 years old (rather than a new car), there is a much higher likelihood that you’ll be having to pay for car maintenance sooner than you would have otherwise and that these costs can add up.