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New Cars vs Used Cars

An icon of a car with a key above it

Test driving a car can be a thrilling ride – literally. When I bought my first car, I test drove it four times to make sure it was really the car for me. I didn’t want to invest a bunch of money into a car that I’d be relying on for several years unless I was sure it was reliable and felt right when I was driving it. Even before I got to that point, I had to decide if I wanted a new or used car. Here are some facts to consider when you are considering a new vs used car.

When you purchase a car, whether new or used, you should make a down payment. Generally, the standard is to make a 20% down payment for a new car and 10% for a used car. New cars can also cost significantly more than used cars. Your down payment for a new car can be significantly higher than for a used car.

Depending on the price differences between the cars, your monthly payment could be more for a used car than for a new car. This is because the loan amount varies because of a car’s price and down payment.

Buying a new car guarantees a factory warranty. A factory or manufacturer’s warranty typically covers up to 36 months or 36,000 miles on a car. You aren’t always guaranteed to still have a factory warranty on a used car. This is especially true if you are buying a car that is a few years old or buying a car that’s already driven a lot of miles.

A new white Range Rover parked on a one lane road

If you want to buy a new car, the possibilities are almost endless when it comes to extra features and customizations. Manufacturers often let you “build” a car online with your desired specifications and then ship it to a dealership nearby. You can choose some basic conveniences and preferences such as color, engine size, and roof racks to luxurious desires such as heated and cooled seats, parking assist, and wireless phone charging. When you are shopping for a used car, you can only choose from what is already available. In addition, you might lose the car you want to another shopper.

Even if you buy a used car in good condition, maintenance costs will likely cost more. The older a car, the more expensive it becomes to repair because of how often it needs repairs. If you buy a used car that is only a few years old, you probably won’t run into this issue. On the other hand, any car with more features are features that will need to eventually be repaired. This also increases your overall maintenance costs.

A general rule of thumb is the more expensive a car, the more expensive its insurance will cost. This refers to the MSRP, not your monthly payments. Newer cars are more desirable for theft because of their higher overall value. In addition, newer cars depreciate faster, which can make them more expensive to insure.

Depreciation is when a car loses value over time. Unfortunately, a new car loses around 9% of its value as soon as you drive it off the lot. It will also lose around another 20% of its value after owning it for one year. You can expect your car to depreciate up to around 15% for the next four to five years. Even though the value of the car significantly decreases after one year, your auto loan still has a few more years on its term. Since most of a car’s deprecation happens within the first few years, a used car that’s a few years old won’t deprecate as quickly since some of its value has already been lost.

Another important factor to consider is a car’s history. If you are buying a new car, relax! The car has no history. A used car can have a history of several owners, accidents, or repairs. While seeing signs of regular maintenance on a used car isn’t necessarily bad, a history of several owners or accidents can be. Keep in mind that tools like CARFAX don’t report maintenance if the owner did the work themself. Take these reports seriously but don’t overthink the results.

In the end, your current financial situation might give you a clear answer. If you need help determining which loan is the better option, use our Compare Two Vehicle Loans Calculator.

When it was time for me to decide between a new or a used car, I bought a used car that was two years old with 24,000 miles. I was able to keep my monthly auto loan payments low with a larger down payment and my monthly insurance payments low too because of the depreciation. I hope your next purchase will be just as rewarding as mine has been.

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