Buying New vs. Used Cars: Which Is the Right Choice for You?

 
Purchasing a car, whether new or used, is one of the largest dollar purchases we make in life. The car we drive is not only a financial decision, but for many people, it is tied to their lifestyle and self-image.
 
While everyone would love a new car, not everyone can afford to buy one. 
 
New cars come with the guarantee of reliability (for the first few years at least), but that reliability comes with a cost.
 
Used cars, on the other hand, are always less expensive (if comparing the same make, model, year, equipment, etc.) and you may be able to purchase a high-end used car for a great price. In recent years, car buying resources such as Carfax have made it easier to shop for reliable used cars.
 
Wondering whether you should buy a new car or a used car? We're here to help! Read-on to learn more about buying new vs. used cars.
 
Credit Union of Southern California (CU SoCal) is one of the fastest growing credit unions in Southern California, providing checking, savings, and loan products with quick pre-approvals, no application or funding fees, and other great member benefits.
 
Call CU SoCal at 866.287.6225 to schedule a free no-obligation auto loan consultation, or learn more about our auto loans now!


Buying a New Car

Budgeting and saving for that new set of wheels is no easy task, but when the time finally comes, you’ll be rewarded with a vehicle you can own and drive for many years.
 
There are several notable advantages of buying new vs. used cars.
 

Advantages of Buying a New Car

Reliability: All new cars, with few exceptions, are highly reliable. New cars typically come with a three-year or 36,000-mile manufacturer's warranty.
 
It's Easier: Buying a new car is easier than buying a used car. Just determine the make and model you want and start shopping. The process for getting a loan, and registering the vehicle are easy.
 
New Car Deals: Year-end sales events, three-day holiday weekends, and the end of each month have traditionally been the best times to get great deals on a new car. These are the times when dealers look to clear inventory and meet sales quotas. For more details on when to buy, read When is the Best Time to Buy a Car?
 
Better Financing Options: Dealers know that everyone loves a new car, plus they have sales quotas to meet. For these reasons, you may find dealer incentives on new car financing and you could benefit from a low or zero percent interest rate/APR. Credit Unions, including CU SoCal, also offer affordable car loans.
 
Higher Safety Standards: New cars will have all of the newest safety equipment, such as airbags, blind spot alert, automatic emergency braking, 360 degree safety view camera/video, stolen vehicle tracing software, and more.
 
Latest Technology: This includes higher fuel efficiency, lower emissions, wireless smartphone charging and connectivity, and more.


Disadvantages of Buying a New Car

The most significant disadvantage of buying a new car is the high cost. Even with a low or zero percent loan interest rate, a full value new a car could cost you $400-$600 a month, depending on the make and model you choose.
 

Here are the main disadvantages of buying a new car:

Depreciation: According to industry experts, the value of a new vehicle drops by about 20% in the first year of ownership. Over the next four years, you can expect your car to lose roughly 15% of its value each year – meaning the average car will be worth just 40% of its purchase price after five years. How much a vehicle depreciates varies based on brand, type of vehicle, how many miles it’s been driven, and other factors.
 
Cost: The initial cost of a new car is typically higher than that of a used car. With a used car you’ll pay less because the car has already depreciated in value. Buying used can save you money because the previous owner already paid for the depreciation.
 
Insurance: Auto insurance for new cars can be expensive because of the comprehensive and collision coverage required by lenders. This average annual cost is nearly double that of liability alone. New car insurance is so expensive because of the cost of repairs or replacement if stolen. Even if your car is older and paid for, insurance can be higher when you carry full coverage to cover an accident or theft.
 

Buying a Used Car

Buying a used car has some specific advantages and disadvantages. Let’s take a look...
 

Advantages of Buying a Used Car

Just as the main disadvantage of buying a new car is the price, the main advantage of buying a new car is price.
 
That’s because when you buy a used car, the prior owner has already paid the price of depreciation. Carfax data show that cars typically lose more than 10% of their value in the first month after you drive off the lot, and it keeps dropping from there.
 
According to industry experts, the value of a new vehicle drops by about 20% in the first year of ownership. Over the next four years, you can expect your car to lose roughly 15% of its value each year — meaning the average car will be worth just 40% of its purchase price after five years:
  • A 5-year-old vehicle that sold for $40,000 when new will be worth $16,000.
  • A 5-year-old vehicle that sold for $30,000 will be worth $12,000.
 

Advantages of Buying a Used Car:

Better Price: Used (pre-owned cars) tend to cost less due to depreciation and the fact that they have more miles on them. So, unless you’re buying a luxury used vehicle, you will certainly find lower priced options buying used.
 
You Can Buy a Better Car: Used cars provide more value for the dollar. A high-end used car can often be purchased at a much lower price than if it were purchased new. This means you get more for your money.
 
Fewer Fees: Dealerships add fees to new cars, including a delivery/destination fee, documentation/processing, pre-delivery inspection, dealer prep, or vehicle procurement fees. Used cars typically have just a few fees: title and registration fees, used car sales tax, and documentation fees.


Disadvantages of Buying a Used Car

Murky History: Used cars may have a murky past, such as flood damage, accidents, excessive wear-and-tear, recalls, etc.
 
How can you learn a vehicle’s history? Here’s some important information from the Federal Trade Commission. Visit the National Motor Vehicle Title Information System (NMVTIS) website, vehiclehistory.gov, to get a vehicle history report with title, insurance loss, and salvage information. This site lists NMVTIS-approved providers of vehicle history reports.
 
NMVTIS-approved providers offer vehicle history reports to consumers, car dealerships, and financial institutions. But not all vehicle history reports are available through the NMVTIS website. Reports from other providers sometimes have additional information, like accident and repair history:
AutoCheck.com
Carfax.com
Vinaudit.com
 
Lack of Warranty Coverage: Dealers may offer limited warranties on used cars, so be sure to ask. Certified pre-owned cars are backed by the original manufacturer, subjected to a rigorous, multi-point inspection, and come with an extended warranty from the original date of service good at any dealer in the country.
 
More Expensive Financing: Dealerships tend to offer better loan financing on new cars because they receive manufacturer bonuses for moving new cars off the lot, and they pass these savings to the consumer. Always ask for the lowest loan interest rate/APR on any loan.


Other Car Buying Options

In addition to buying a new car, there are several other ways to get the car you want at a price you can afford:
 
Certified Pre-Owned (CPO): For this answer, we turn to Autotrader.com, which explains that “a CPO car is one that is previously owned, usually with no more than 60,000 to 80,000 miles and no older than five to seven years. (The time and mileage warranties vary by manufacturer.) CPO cars are backed by the original manufacturer, subjected to a rigorous, multi-point inspection and come with an extended warranty from the original date of service good at any dealer in the country.”
 
Lease: Leased vehicles are typically new and are offered by all dealerships. A lease simply refers to the terms of the transaction. As an alternative to purchasing a car, leasing a car means taking possession of it for a short, fixed period of time. Like with purchasing a new car, you’ll make fixed monthly payments based on the loan interest rate you received. The main difference between leasing and purchasing new, is that when you purchase a car, it becomes fully yours once the loan is paid in full. With a lease, when the term of use ends, the vehicle must either be returned to the leasing company or purchased for its residual value.
 
For more details read, Pros and Cons of Leasing vs. Buying a Car.


Is it better to Buy New or Used Cars?

Whether you ultimately buy a new or used car, the one you choose would be the one that best meets your budget. Keep in mind that you’ll need to pay a monthly insurance premium as well as the loan payment (unless you buy entirely with cash). While a new car will come with a more comprehensive warranty and not need repairs right away, you’ll be paying a higher price out the door. Used cars can be incredibly reliable, especially a certified-pre-owned car.
 
Our best advice is to do the numbers, get prices on both a new and used car of the same make and model (if both are available), compare monthly payments based on the best interest rate you can find on each loan, and call your auto insurance company and get a quote for insurance on each. Once you have the numbers, you can determine which is more affordable on a monthly basis.
 
Next, use Credit Union of Southern California’s car loan monthly payment calculator as a tool for starting your search for a new car.


Why Savvy Consumers Choose CU SoCal

For over 60 years, Credit Union of Southern California has been proudly serving the Southern California community. We provide our members with checking, savings, personal loans, auto loans, and other loan products with quick pre-approvals, no application or funding fees, and other unique advantages.
 
We are known throughout the area for our excellent Member service and we are proud to be serving the community where we work and live.


Apply for a CU SoCal Auto Loan Today!

Please give us a call today at 866.287.6225 to schedule a no-obligation consultation with one of our auto loan experts, or use our fast and easy online application.
 

Building Better Lives

Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.

 

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