Books or websites about saving money often say you should never buy a new car. After all, a new car can lose as much as 20% of its value in its first year. If you buy a 1-year-old used car instead, you can get practically the same car for 20% less.
But a used car isn’t always cheaper than a new one in the long run. It depends on a whole host of factors, such as how old the car is, how gently it has been driven, and how long you plan to keep it. And on top of that, cost isn’t the only factor to consider.
The truth is, “Never buy a new car” is the kind of one-size-fits-all financial advice that seldom works for everyone. In real life, your mileage — as well as your car’s — may vary. It makes sense to look carefully at all the factors involved before deciding whether new or used is right for you.
Buying a New Car – Advantages and Disadvantages
New cars have a lot of benefits, including safety, reliability, and ease of shopping. But these benefits come with higher costs — literally.
Advantages of Buying a New Car
A lot of new car owners wax lyrical about the magic of the new-car smell. But new vehicles offer much more concrete benefits than that.
1. Easier to Shop for
Shopping for a new vehicle is easier than buying a used one. For one thing, you have more cars to choose from. Any car on the market is fair game, so you can look for the exact model that fits your needs without being limited by what’s available.
Also, with a new car, you don’t have to worry about its condition. You don’t have to research its history, get an inspection, or check the Carfax report. You know both the car and its title will be pristine. Most dealerships will even take care of the paperwork for you.
2. Better Financing Options
Lenders usually offer better financing options for new cars than for used cars. New-car loans are less risky for them, because they have the brand-new car itself as collateral. And new-car buyers tend to be more reliable about paying back loans than used-car buyers.
Also, automakers sometimes offer special incentives on new cars. If a car isn’t selling well, they try to lure buyers with cash-back deals or lower interest rates on auto loans. Buyers with good credit scores have the best chance of qualifying for these special deals.
3. Advanced Features
When you buy a new car, you know you are getting the latest technology. New cars offer advanced safety features like emergency braking, lane-keeping assistance, and backup cameras. And they’ve been put through the latest, most rigorous safety tests.
New cars also offer the latest connectivity and entertainment features. They can interface with your smartphone to provide streaming audio and real-time traffic updates. And for your passengers, there are bigger video displays with touch-screen capabilities.
Speaking of features, buying a new car allows you to choose which ones you want. You can choose the interior and exterior colors and add extras like a sunroof or heated seats. If the dealership doesn’t have a model on the lot that matches your wish list, they can order it for you.
5. Lower Repair & Maintenance Costs
One cost that’s definitely lower for new cars is maintenance. In its first few years on the road, a new car typically needs only scheduled oil changes and tune-ups. Pricey items like tires, brakes, a battery, or a new exhaust system aren’t likely to be needed for at least three years.
Having a low-maintenance car does more than save you money. It’s also good for your peace of mind. You never have to worry about whether your car will break down without warning and leave you stranded.
6. Warranty Coverage
Of course, routine car maintenance isn’t the same thing as repairing something that breaks unexpectedly. Even on a new vehicle, parts can occasionally fail. But when that happens, you’ve got the manufacturer’s warranty to cover you.
Most new car warranties cover the entire car for three years or 36,000 miles. The drivetrain (basically, the parts that make the car go) is often covered for as long as 10 years. As a new car owner, you know you won’t face any unexpected expenses for major repairs to your vehicle.
7. Better Gas Mileage
New cars generally have better fuel efficiency than older ones. According to the U.S. Environmental Protection Agency, the average gas mileage for new vehicles has risen from around 19 mpg in 2004 to over 25 mpg in 2020.
8. Longer Lifespan
Finally, a new car simply has more years of life in it. Most modern cars can keep running for at least 200,000 miles. Depending on how much you drive, that could be 10 to 20 years.
If you buy a brand-new car, you should be able to keep it on the road for at least 10 years with proper maintenance. By contrast, a five-year-old used car could need replacement in as little as five years. In short, choosing a new car means you can go longer before needing to replace it.
Disadvantages of Buying a New Car
The perks of new vehicles don’t come cheap. A new car costs you more in three ways: higher purchase price, higher insurance cost, and faster depreciation.
1. Higher Purchase Price
New vehicles cost quite a bit more than used ones. According to Forbes, the average new car cost more than $40,000 in 2021. The average used car cost closer to $25,000. And that’s an unusually high price, because the COVID-19 pandemic has driven up used car costs.
That means that with a new car, you’re likely to pay more for each year of useful life. If you buy a new car for $40,000 and it lasts 15 years, that comes to about $2,667 per year. But if you buy a 3-year-old car for $30,000 and it lasts 12 years, it costs you only $2,500 per year.
Higher prices for new cars also translate to higher monthly payments, despite the lower interest rates on new-car loans. A four-year, $35,000 loan on a new car at 3% would cost $775 per month. A four-year, $25,000 loan on a used car at 5% would cost only $576 per month.
2. Higher Car Insurance Rates
In general, new cars cost more to insure than older ones. The cost of auto insurance depends partly on the value of the car, and new vehicles are worth more.
Also, older cars can usually do without collision coverage and comprehensive coverage, which add to the insurance premium. But when you take out a new car loan, lenders often require you to carry these types of coverage.
However, there is an exception to this rule. Some insurers give a new car discount for a car during its first year. If yours does, then your new car may be cheaper to insure than a used car when you first buy it. But after a year, this benefit disappears.
3. Faster Depreciation
All cars lose value, or depreciate, over time. According to iSeeCars, the average new car loses about 40% of its value during its first five years on the road. Depreciation is steepest during a car’s first year, when it can lose up to 20% of its value.
If you buy a new car for $40,000 and try to sell it after five years, you will probably get only $24,000 for it. That doesn’t matter so much if you plan to keep driving your old car as long as it runs. But if you prefer to drive only cars that are less than five years old, depreciation is a big budget-killer.
Buying a Used Car – Advantages and Disadvantages
Like new cars, used cars have both advantages and disadvantages. When you buy a used car, you pay less, but you have less control over exactly what you get for your money.
Advantages of Buying a Used Car
Buying a used car saves you money across the board. You save not only on the upfront cost, but also on insurance, depreciation, and sometimes registration fees. And in some ways, owning an older car can be less stressful, too.
1. Lower Purchase Price
The biggest advantage of used vehicles is their lower prices. As noted above, cars lose a lot of value to depreciation, especially in their first year. That allows used-car buyers to get a car with a lot of life left in it for a much cheaper price.
As a bonus, lower prices also mean lower sales taxes. In most states, when you buy a car, the tax you pay depends on the purchase price. A cheaper car automatically comes with a lower tax bill, so you keep more money in your pocket.
2. Lower Car Insurance Rates
Because used cars are worth less in dollar terms, they’re cheaper to insure. That’s especially true if you choose a car you can afford to pay cash for upfront. Since you aren’t financing it, you won’t be required to carry collision and comprehensive coverage, which add to the cost.
Of course, dropping this coverage means you have to pay for repairs if the car is damaged in an accident or pay to replace it if it’s stolen. But since the car itself is cheaper, that’s a risk you can more easily afford to take.
3. Slower Depreciation
Cars continue to lose value throughout their life. A 10-year-old car is worth less than a 6-year-old one. However, older cars depreciate a lot more slowly than newer ones.
For example, Progressive estimates that a car bought for $40,000 new loses 25% of its value in the first two years. But over the next two years, it loses only 22% of its original value. Over years five through six, it loses only 18%.
If you buy a two-year old car for $30,000 and decide to sell it after two years, you’ll get back $21,200. In other words, you’ll have spent less than $9,000 for two years of ownership. But if you resell a new car after two years, you’ll be down $10,000.
4. Lower Registration Fees
You only pay sales tax on a car once, when you buy it. However, you have to keep paying registration fees year after year as long as you own it. And in some states, these fees are also lower for older cars than for newer ones.
According to the National Conference of State Legislatures, three states charge less for older cars. An additional seven states adjust the fee based on the value of the vehicle, which is typically lower for an older car. Check the website to see if buying a used car can reduce your registration costs where you live.
5. Less Likely to Become Underwater
Because new cars depreciate so fast, it’s possible to end up owing more on your car loan than the vehicle is worth. This is called being underwater or upside-down on your car loan. If you need to sell the car, the amount you get back for it won’t be enough to pay back the loan.
Being underwater is also a big problem if the car is stolen or totaled in an accident. The amount you get from insurance won’t pay off your loan, so you’ll still owe money on a car you no longer have. With a used car, which depreciates more slowly, this is much less likely to happen.
6. May Be Able to Buy a Nicer Car
Since used cars cost less than new ones, they allow you to stretch your car-buying dollars. Let’s say you only have $20,000 to spend. For that price, the only new cars you can afford are smaller economy models like the Kia Rio or Hyundai Accent.
But if you’re willing to consider used cars, you can get more car for your money. You could upgrade to a midsize car or an SUV. Even a luxury car like a Mercedes could be in your price range if you don’t mind one that’s 6 or more years old.
7. Less Stress Over Dents & Scratches
When you own a new car, you’re always worrying about ruining its factory-perfect paint job. Every little scratch becomes a source of stress — especially because it makes the car depreciate faster.
With a used car, you don’t have to worry about those little details. The car has already accumulated a few scratches and dings, and a few more won’t hurt the resale value much. Against all the existing wear and tear, they’ll hardly even show.
Disadvantages of Buying a Used Car
Used vehicles are cheaper than new ones for a reason. When you buy one, you’re making some sacrifices — mostly in the areas of selection and reliability.
1. Limited Selection
When you shop for a used car, you just don’t have as many options to choose from. That means it takes more time and effort to find a model that fits your needs. And you may have to compromise on some of the details like color, features, or condition.
2. You Can’t Be 100% Sure About Its History
Even when you find a used car that looks right for you, you can never be completely confident about it. You never know for sure how the previous owner has treated it and what kind of shape it’s in.
You can get around some of these problems with a vehicle history report, which tells you whether the car has been in any accidents. However, these reports may not reflect accidents that just happened recently.
You can also ask to see the car’s maintenance records and have its condition checked by a reliable mechanic. And you can do a title search to make sure the current owner really is the legal owner. But even with these precautions, you can’t be sure of every detail.
3. Higher Repair & Maintenance Costs
Cars today are much more reliable than they used to be. Many can go 100,000 miles or more before they need any major repairs. Even routine maintenance, such as oil changes and brake jobs, doesn’t have to be done as often.
Still, there’s no getting around the fact that older cars need more maintenance than newer ones. A 2021 Consumer Reports analysis found that the average maintenance cost for a 5-year-old vehicle is $205 per year. For a 10-year-old car, it’s $430. Those higher maintenance costs also mean more time and hassle for repeated visits to the mechanic.
The good news is that during the first five years of a car’s life, maintenance costs don’t change much. So a late-model used car is unlikely to put you to much more trouble and expense for repairs than a new car.
4. Lack of Warranty Coverage
One reason newer cars cost less to maintain is that they come with a warranty from the automaker. Most used cars don’t come with this coverage.
However, there are exceptions. If you buy a late-model used car that’s still under the factory warranty, that coverage transfers to you. For example, if you buy a 2-year-old car with a 3-year warranty, you get one year of coverage.
Also, when you buy a used car from a dealership, they’re likely to offer you the chance to buy an extended warranty. This costs extra, but provides peace of mind. However, depending on the cost, it could be a better deal to buy mechanical breakdown insurance on your own.
5. Lemon Law May Not Apply
All 50 U.S. states have lemon laws to protect new-car buyers. These laws entitle buyers to a refund or replacement if their new cars have major mechanical problems that the dealer can’t fix. In most states, these laws don’t apply to used cars.
But again, there are exceptions. In some states, lemon laws apply to any used car that’s still under the original warranty. And in a few states, lemon laws cover used cars in general. Check Lemon Law America to see what the laws are in your state.
Should You Buy a New Car or a Used Car? – Here’s the Verdict
When it comes to the benefits of new vs. used cars, there’s no one-size-fits all solution. It all depends on what matters more to you. Used cars save you money, but new cars save you time and give you more control.
You Should Buy a New Car If…
A new car is a better fit if:
- You Don’t Have a Lot of Time to Shop. Buying a new car is a lot less work than buying a used one. You just choose the model you want, then go to a dealership and buy it. Used cars require far more research, both to find available cars and to vet them.
- You Have Very Specific Needs. With new cars, you have a lot more choice. You have access to the latest features not found on older cars. And you can tailor the vehicle you buy to your exact requirements, right down to the color.
- You’re Risk-Averse. Used cars are riskier than new ones. They’re less reliable on average, and you can’t be exactly sure about their condition. A new car is a known quantity. Its condition is pristine, and it comes with the protection of a warranty.
- You’re In It for the Long Haul. If you like to keep the same car as long as possible, it makes sense to start with a new one. You’ll get more years out of it, and depreciation doesn’t matter on a car you’re never going to sell.
You Should Buy a Used Car If…
A used car is a better fit if:
- Money Is Tight. You can almost always get more car for your money buying used rather than new. You’ll save on insurance, too, and maybe on your registration. And if you need to resell the car, you’ll get more of your money back.
- You’re Rough on Cars. If you’re the kind of driver who puts a lot of wear and tear on a car, there’s no point in paying more for a brand-new one that won’t look new for long. On a used car, dings and dents show less, and they cause less depreciation.
- You Do Your Own Repairs. Olders cars cost less to maintain if you’re able to do all or some of the work yourself. And it’s easier to do your own repairs on an older car than a new one that requires more sophisticated, specialized equipment.
In general, new cars are better for people who know exactly what they want and are willing to pay for it. Used cars are better for those who want the best value and can accept a few compromises to get it. But there’s also a middle ground between the two: certified pre-owned (CPO) cars. They combine the reliability of a new car with the lower cost of a used one.
CPO cars are generally under three years old, with relatively low mileage and no history of major damage. They all pass a series of strict inspections, both mechanical and cosmetic. And they’re backed by an extended warranty with the same perks as a new-car warranty.
You can buy CPO cars through new-car dealerships. They generally cost less than new cars, but more than other used ones. And they often come with more financing options than other used cars.
Regardless of whether you choose a new car or a used one, you don’t want to spend any more on it than you need to. Do some reading on car shopping to learn how to get the best deal on any car you buy.