New Cars vs. Used: The Perennial Choice

Toyota tire-kicker in Seattle

Toyota tire-kicker in Seattle

Okay, I’ll give you the bottom line up front (which you already know): In most cases, buying used makes more financial sense. As always, there are mitigating circumstances.

The biggest variable is that, for some people, cars are just transportation. For others, they represent an investment. Still others are emotionally involved and see cars as part of their identity or lifestyle.

So the choice should be made on how you value and use your car as much as it is a dollars-and-cents calculation.

We’ve written a lot in this blog about how the used-car market is at record highs, but there is some evidence now that prices are going down and will drop further by summer’s end.

So, on a strictly financial basis, you may do better to wait a couple of months. Buying used has plenty of advantages, plenty of pitfalls. The biggest advantage is price, as new cars depreciate an average 40 percent of their value within three years. Our DealFinder will show you a bunch of options.

Depreciation varies a great deal by make and model, and so do operating costs—both of which you should figure over a 5-year period, unless you plan to turn the car over sooner. How long you intend to keep the car is a key factor. In general, it makes sense to buy a used car that has depreciated or a new one that will maintain its resale value.

When pondering the new vs. used conundrum, you should make valid comparisons. One thing people forget is that when comparing a new car with a used one that has 30-40,000 miles, you should figure in the cost of new tires, brakes, shocks, etc. Buyers must always be prepared to put money into a used car.

I’ve always thought that leasing was a valid option for people who drive less than 15,000 miles a year. This can keep your yearly cost (and maintenance risks) way down if you lease cars with a high residual value and drive them for two or three years. You’re driving a new car and, basically, paying for only what you use over the term.

Mercedes-Benz CPO eventBuying luxury cars just coming off lease is another money-saving gambit. Or rental cars, which have some risk attached but can save you big bread. CPO cars may not be worth the extra money.

It really comes down to the kind of vehicle you want and value. If you want just the basics, cars like the new Nissan Versa that we just wrote up could be a better deal than any used Corolla.

Here’s an interesting story about a guy who is hooked on new cars. He’s had 22 different cars in 20 years and spent a whole lot of money feeding his habit. Another story here highlights the difference between cost and value in buying a car, and that is the element that’s most critical and most often overlooked.

Let us have your suggestions on how to make the new vs. used purchase decision.

—jgoods

Find Used Cars in Your Area at CarGurus

Used Nissan Versa
Used Toyota Corolla

2 Comments

  1. I don’t think I’ll ever buy a new car again. Just doesn’t make sense. Use cash or pre arranged financing and buy what you can afford. Dealer financing is a trap to buy more than you can afford.

  2. The most important thing in car buying is burying your ego and being realistic about what you are willing to drive. I suppose there is a fairly large group of soul-less individuals whose only personal validation is through what they own, but for most of us, we can accept a bit less to get a lot more. For example, in certain areas of the country, there are large numbers of car company employees getting deals on cars, so certain makes are plentiful used. In the Ann Arbor area that would be Toyotas. Around here it’s GM, Chrysler and farther south, Ford. Popular employee lease cars are vehicles like the Chevy HHR, Malibu and Impala. Take a look at dealfinder and you’ll see tons of cars prices thousands below the average in these cars. For some of you, a buying trip out of state can net big savings on a used vehicle, and I’ve found dealfinder makes it easy to search anywhere– yes, even for a Ferrari. As for new cars, arranging your own financing is the way to go. And nothing gives you more bargaining power than having essentially cash to buy a car. It’s a sad fact that dealers, especially used car dealers, make more money on the financing than on the car, and eliminating that aspect will save you a lot of money. Remember, if they’re making more money on the car, you’re paying more money.

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