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.
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.