With interest rates lower on new cars and the allure of warranties and that new-car smell, many buyers wonder whether they should invest in a new vehicle or buy used. Sometimes it can feel like a used car is just someone else’s headache — and it can be if you don’t know what to look for. But a new car is not always the best option, depending on where you are financially and why you are buying the car. There are many considerations to keep in mind when you buy a car. These four questions will help you to determine whether you are better off buying new or used.
If you buy a car based solely on what you can pay in your monthly budget, the little secret is this: you are going to end up paying more for the car than you should. When you are deciding on new or used, the amount that you have to spend should never be your deciding factor. There are times when used cars seem like a good option and others when new seems within the realm of our finances. The key is to make sure not to put yourself into a tough financial situation.
Do you have any equity in a trade-in or can you put in a down payment?
If you are someone with a good credit rating, then buying a new car is probably not going to be a problem — even without a trade-in or a down payment. Car manufacturers are willing to work with people who have good credit scores and offer them all sorts of incentives to go new. Incentives come in the form of discounted financing, rebates, and sometimes even cash options.
If you are going to buy a used car, you are probably always going to have to put in a down payment or use your old car as equity for a trade-in. So it would behoove you to consider a new car if you don’t want to put any cash down or you don’t have a car that you can use to trade in.
Do you want to take the depreciation hit?
When you drive a new car off of the Langley dealership lot, within the first year you lose an estimated 20% of the equity of the car that you are paying for in its financing. When you buy new, you are going to be the one who is taking the depreciation hit right off of the top. In some instances, cars can depreciate as much as 50% in just the first three years. Is that something that you really want to take on?
If you buy a used car that is two to three years old, you are likely going to get the same features, but you won’t be the one who has lost the equity through depreciation. If you buy a used car that is fairly new, then someone else is going to take the hit. By the time you own it, the car will have started to depreciate much more slowly. And if you intend only to have it for a couple of years, what you can sell it for in the end will be close to what you paid, if you take good care of it.
Can you afford car repairs?
When you buy a car the last thing you are considering is the cost of repairs. But if you are buying a used car, that has to be foremost in your mind. Used cars are older and pre-used, which means that they might come with hidden repair costs that can start to add up. If you don’t build repairs into your used car budget, then you can quickly get in over your head. If your budget is already maxed out with payments, then make sure to buy a new car that comes with a warranty, so that you don’t have to worry about those costly fixes.
Can you wait out the used car search?
The time that it takes to find a used car that you like may not be a luxury that everyone has. If you need to get a car quickly and don’t have the time to sit and wait for the right one to come along, then you might have to pay for a new car that is just what you want. Waiting for a used car that suits you — while paying for the repairs on the one you have — simply doesn’t make much sense.
Everyone is in a different situation when they are shopping for a car. If you consider these four questions, the answer to whether to buy new or used should be fairly easy to decide.