At some point in your life you’ll likely need to buy a car. Amongst the many choices you’ll have to make as a car buyer is whether you want a new or used vehicle.
There are certainly benefits to driving a brand-new car – no miles or mysterious history, new technology and even that sweet new car smell. But does that make a new vehicle worth the cost?
According to Experian, the average payment on a new car was a whopping $726 a month in 2023. If your budget can’t sustain an expense like that, or if price is generally your main concern, a used car is definitely the way to go. Especially when you consider how quickly new cars lose value.
Benefits of buying a new car
1. Reliability
When you compare a new and used model of the same car, the new version is likely to be more reliable. With a brand new car, you start from scratch with zero miles on the odometer, and you don’t have to wonder if the past owner did damage.
On top of that, most new cars are under warranties for at least three years or 36,000 miles. While that doesn’t mean you get three years of free repairs, it does mean that defective parts and labor are typically covered.
2. Lower Interest Rates
While buying a used car is cheaper, one benefit of borrowing money for a new car versus a used one is that interest rates are generally much lower. In 2023, the average APR for a new car loan was 7.03% while used cards were at 11.35%.
3. Safety Technology
Another benefit of driving a new car is the added safety features many of them possess. These might include better alert systems, emergency braking and other advanced driver assist functions. Safety features are certainly something to inquire about when purchasing any new car.
Benefits of buying a used car
1. Less depreciation
A used car may not have all the bells and whistles you want, but owning one can save you a lot of money on depreciation—which is the loss in value that happens due to time and use.
How fast do cars depreciate? New cars lose as much as 20% of their value within the first year of ownership and 60% within five years. In other words, a $40,000 car could be worth $32,000 after one year and $16,000 after five years.
Unfortunately, most car owners can’t pay down their loans at the same rate, especially since the majority of your loan payment goes to interest (not the balance) in the early part of the repayment plan. So with a new car, you’re likely to end up underwater fast. But if you buy a car that’s a few years old, you can avoid that financial loss and risk.
2. Move up in class
Many people have a dream car they’ve always wanted. Whether it’s a sports car, an SUV or a certain luxury brand. If you don’t feel like shelling out cash for the new version of the vehicle, purchasing a used one could help you realize your dream.
3. More affordable
According to Experian, the average price of a new car was $40,850 in 2023 but the average used car was $26,803. At the same time, less than 39% of used cars were purchased using loans while nearly 80% of new car purchased involved loans.
On top of a lower sticker price and a low chance of needing to borrow money, used cars generally see a reduced registration fee, since most states base the cost on the year and value of the car. Used car fees can also be lower at the dealership.
Plus, if you do need to borrow money, you’ll have an easier time being approved for a smaller loan, especially if you have less-than-perfect credit scores.
4. Longevity
In the past, a car with 100,000 miles was potentially unfit to drive. Due to new technology, however, today’s used cars are far more reliable, as long as they’re well-maintained of course. Even if a used car is well-worn, it could still serve its purpose for anywhere up to 200,000 miles.
Calculate what you can afford
Buying a used car can certainly save you money, but that doesn’t necessarily make it affordable. Regardless of whether you chose new or used, the best place to start is by figuring out what you have room for in your monthly budget.
When you’re looking over the numbers, remember the purchase price isn’t the only cost involved. You’ll also have to cover monthly car payments (if you take out a loan), plus registration, insurance, maintenance and gas.