Car Purchase: New or Used?

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Auto LoansThe decision to buy a new or used car is not one to be taken lightly; whether you decide at the beginning of the process that you want a new car, during the middle of the process when you realize you may only be able to afford a used model or at the end when you’ve completed model comparisons and you’re deciding on a comfortable car payment. There is no right or wrong answer and the decision will vary depending upon the needs and wants of the car buyer.

There is no question that a great deal of research is needed when weighing cost factors of purchasing a new car versus a used car. In our current economy it may be cheaper to purchase a new car rather than a used car when looking at new vs. one-year old used and pre-owned versions of the same model.1

Some of the most common reasons for purchasing a new car:

  • Customization – made to order
  • Reduced maintenance
  • Warranty coverage
  • Peace of mind
  • Roadside assistance
  • That new car smell
  • Updated safety features
  • Latest technology and gadgets
  • Higher fuel efficiency options

Something else to consider when looking at purchasing a new car, especially if you think you may want to sell or trade it in the future, is its residual value. The residual value (how well a car is predicted to uphold its value) is used in calculating lease and loan payments. According to TrueCar and ALG the top five mainstream car brand rankings in order are Honda, Hyundai, Scion, Subaru, and Mazda. If you’re interested in luxury brands those with the highest residual value in order are Acura, Infiniti, Audi, Lexus, and Mercedes Benz.2

“Residual value is a complete indicator of vehicle value, taking into account quality, durability, and brand desirability,” said Larry Dominique, President of ALG.2

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On the flipside some common reasons for purchasing a used car:

  • Increased choice
  • Improving reliability
  • Just like new
  • Affordability
  • Price
  • Lack of acute depreciation
  • Insurance rates

We previously mentioned that buying a new car could be cheaper than buying a one-year old used car but what about older vehicles? According to CNN Money you could save as much as 30-40% over new if you purchase a 3-year-old model.4 Purchasing a used car allows the new owner to avoid the new car depreciation hit the second they roll off the parking lot and allows them the ability avoid the mental anguish that comes with a first paint chip or ding.

Questions to ask a used car dealer before buying3:

  • Do they offer haggle-free used car prices?
  • Who certifies the car?
  • Do they offer a return policy?
  • Does the purchase include a warranty?
  • Do they offer a service contract?
  • Do they offer roadside assistance?

So what will it be? The brand new car with all the tech gadgets, cutting edge safety features and that new car smell or the used car with its improving reliability, lower insurance rates and pre-depreciated price tag? The beauty (and value) is in the eye of the beholder when it comes to deciding between new or used car purchase.

 


Sources:
1 Some New Cars Now Cheaper Than Used Cars (May 20, 2013). Edmunds. http://www.edmunds.com/car-news/new-vs-used-car-buying.html
2 TrueCar and ALG Share Top New Car Residual Values (December 12, 2012). TrueCar.com Blog. http://blog.truecar.com/2012/12/06/truecar-and-alg-reveal-new-car-residual-values/
3 Consider the Used Car Dealer Before Buying (2013). Enterprise Car Sales. http://www.enterprisecarsales.com/selecting-a-dealer
4 Buy a New Car Or A Used Car (July 25, 2012). CNN Money. http://money.cnn.com/magazines/moneymag/money101/lesson17/index4.htm
Reference:
The Advantages of Buying a New or Used Vehicle (May 2009). Car and Driver. http://www.caranddriver.com/features/the-advantages-of-buying-a-new-or-used-vehicle

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