Buying a car is an interesting experience.
Some of us get excited about it … we can finally say goodbye to that money pit that’s been nothing but headaches since you bought it. Others of us are car shopping because we’re forced to – our reliable vehicle suddenly took a turn for the worse and we’re forced to buy another auto.
Whether you’re excited to hit the local car lots or not, the same principles of wisdom and savvy apply. Find a car you like, haggle about the price and drive home in something you can see yourself driving for the next (hopefully) ten years.
While those basic principles are always at work, the details of your car purchase can be pretty overwhelming and can change from person to person.
Should you buy used? Friends and neighbors who did it either love used cars or hate them. Should you buy new? There are people out there who swear by new cars and couldn’t stand the thought of driving a car someone else has used.
But let’s not overcomplicate things. Let’s keep them simple. You’re going to have to buy a car at some point in your life, whether this weekend or in five years. And when that time comes, you’ve got to be equipped with the right knowledge.
Over the next few minutes, we’re going to mix the opinions of experts with our own research and life experience to help you understand the pros and cons of buying used cars and new cars.
Are New Cars Really Worth It?
When you’re shopping for a car, there’s nothing quite like driving by a dealership and seeing row after row of gleaming cars whose steering wheels have never felt the guidance of an owner. They’re wild, beautiful and so tantalizingly ripe for the picking there’s a part of you that wants to forget your budget, choose one of the new models and drive home infatuated with your brand new vehicle.
Now, your parents or friends may tell you, “New car? Are you crazy? That thing is going to lose thousands of dollars in value as soon as you drive off the lot!”
And while there’s a decent amount of wisdom involved in that claim (more on that later), you may not be swayed by their pleas.
If you decide to go with a new car, you won’t be alone, either. More than 17 million Americans bought a new car in 2015, breaking a one-year sales record that stood for 15 years. In 2014, that number was above 16 million (42 million used cars sold that year).
But before you sign the proverbial dotted line, let’s talk about the pros and cons of buying a new car.
The Pros of Buying a New Car
Aside from the obvious (new cars have never been driven by another owner), there are some distinct advantages to buying new instead of used.
New cars almost always come with some sort of warranty from the manufacturer and usually last at least three years or 36,000 miles, with some covering 10 years or 100,000 miles.
This is one of the reasons why Mike Rabkin, president of auto price-negotiation service From Car to Finish, says new cars have certain perks you can’t get with a used car.
“New vehicles have the benefit of a full warranty 100 percent of the time,” Mike says.
As we just talked about, the length of those warranties can vary and so can what they cover. Manufacturer warranties usually come in three types: basic, powertrain, corrosion:
- Basic is also known as “bumper-to-bumper” coverage and covers anything the factory installed in your car that isn’t part of the powertrain warranty, tires or rust.
- Powertrain covers the car’s engine, transmission and drivetrain (axels, etc.)
- Corrosion covers your car from rust damage
Most of the time, these warranties are transferrable to the second owner of the car (exceptions are Kia and Hyundai). But because we’re talking about new cars right now, we’ll save that for our used car section.
Some manufacturers will offer limited or lifetime powertrain warranties. The main differences, car website Autobytel says, are coverages on certain parts, cost of labor to fix parts and when the warranty kicks in. Make sure you know what’s covered and what’s not covered if your car only comes with a limited powertrain warranty.
Recent ratings by AutoTrader.com, who rates Hyundai, Kia, and Mitsubishi as the top companies for powertrain (10 years/100,000 miles) and basic warranties (5 years/60,000 miles), while Mercedes wins the corrosion category for its lifetime coverage.
A Quick Word About Aftermarket Warranties
Your dealer may try to push an aftermarket extended warranty on you when you’re buying your new car. According to O.J. Lopez, lead tech and owner of Chicago’s Fluid MotorUnion automotive repair, you have to be smart about these sales pitches.
“I advise against aftermarket maintenance plans. You need to do your research,” O.J. says. “Many companies offer the dealer huge profits to sell the warranties, but in the underwriting, they find ways to make sure almost nothing is covered.”
His advice is to do your research before buying the aftermarket warranty. Here are two examples:
Check out these reviews to get an idea of what the warranties offer, what people are saying about them and other important details.
In general, new cars have better reliability than used cars. A lot of that has to do with the fact that your new car is covered under warranty, so if anything goes wrong, there’s a good chance your dealership will repair it under the terms of your warranty.
When you buy a used car, it’s difficult to know how the previous owner drove the car, how often they serviced the car (aside from what’s mentioned in the vehicle’s history report) and who repaired the car.
New cars don’t have any of those headaches.
A Relatively Easy, Quick Buying Process
Let’s say your car drops dead in the middle of the week. You need something within a day in order to get back and forth from work. Waiting around isn’t an option. Buying a new car from a dealership means you have multiple choices in one location: color, trim, engine type … they’re all there in one place.
If your credit is decent, you’ll most likely get a good interest rate and some type of rebate, O.J. Lopez says. These perks, along with the one-stop-shop buying experience, can be a huge relief if you’re in a jam and need a new car fast.
The Cons of Buying a New Car
The average used car costs about half as much as the average new car, according to Bankrate.com. As of 2015, the average new car sets you back $33,560, as opposed to the $18,880 the average used car would cost.
Remember how we said that people might tell you that new cars lose their value as soon as you drive them off the dealership’s lot? It’s true.
In fact, the way your car decreases in value is the top expense for new-car owners for at least eight years, Consumer Reports says. That loss in value accounts for 57% of your ownership expenses at the end of the first year, 50% at the end of three years and 43% at the end of eight years. This graphic explains it pretty well:
Image via Consumer Reports
In general, Consumer Reports says, your car will lose 65% of its value at the end of five years. So, if your car cost you $30,000 when you bought it, there’s a good chance its value will be around $11,500 after three years. The cost to you? $18,500.
That number will vary based on a few factors, Consumer Reports says:
“Some vehicles depreciate faster than others because of oversupply, limited appeal, or rebates on similar new models,” they say.
If you’re buying a new car, you’re forced to go to a dealership to get your new wheels. And who’s the one person you always have to talk to in order to find that dream ride? The salesmen.
There are hundreds of dollars of commission in play each time a new car is bought, which means your salesperson is going to try and work the terms of your purchase, the car and the financing to his or her advantage.
There are a few classic tricks salespeople use to put you in your car, one of which is the “good cop/bad cop” routine in which the salesperson is abrasive and the sales manager is kind. For more on this, be sure to read an article from Wisebread about this little routine.
The Pros of Buying a Used Car
Used cars are a great option for your wallet. Plus, the fact that you can buy from private sellers means you don’t have to worry about high-pressure sales tactics from dealerships salesmen. There are plenty more advantages, a few of which we’ll talk about in this section.
As we mentioned a few minutes ago, the average used car costs a little more than half the price of a new car. That’s a huge plus, especially if you’re financing the car. Based on our calculations, you can save about $1,000 in interest if you buy a used car with a five-year loan at normal rates as opposed to a new car.
Let’s get away from averages, though, and talk about the biggest benefit to used car pricing: availability across all budgets. What’s that mean? You can buy a used car no matter what your price range is.
We did a quick search on Auto Trader to point out the pricing flexibility you have for a used car. We searched the Seattle zip code 98101 for cars under $3,000 and got 375 results. We searched cars under $2,000 and got five results; not as extensive, but it still shows you can get a used car cheap.
The added advantage here is that, not only do you get a car that fits your budget, but you can easily avoid charges associated with loans by paying for your affordable auto in cash.
Private Sellers Are an Option
If you hate dealing with the high-pressure tactics of a dealership, used cars give you an out by letting you search for vehicles sold by private parties.
For instance, AutoTrader lets you filter your results by dealer, private seller or both. Cars.com has a similar feature – you can choose between dealer or private party/classifieds.
No Dealership Fees
Your freedom to choose a private seller also means you can avoid dealership fees, a one-line item on your cars invoice that every dealership charges whether they’re selling you a new car or a used car.
Think of it as the auto equivalent of closing costs on a house, except that dealership fees are much cheaper (the usually are less than $600). This fee, sometimes called a “paperwork fee”, covers the paperwork process the dealer undertakes, says US News & World Report contributor Gary Foreman.
If you want to learn more about the fees you can expect when buying from a dealership, check out an article by Edmunds.com called “What New Car Fees Should You Pay?” There are many charges included in the article, all of which have great explanations to help you know what you’re getting into.
Buying a used car allows you to escape some of these fees and save you a considerable amount of money.
The Cons of Buying a Used Car
The downsides to choosing a used car over a new car are pretty simple:
Wear and Tear
Used cars have miles on them, and the more miles they have, the more likely they are to break down. According to O.J. Lopez, you can expect to pay a sizeable amount of money each year on your used car.
“You can expect to pay, on average, about $1,500 a year maintaining and repairing your car over 10 years,” he says. “You may go three or four years paying just a few hundred bucks for oil changes, but that fifth year your antilock brake pump might go out and, along with new brakes, you’ll pay $3,300 to fix it.”
The same issue in a new car may not cost you anything, depending on the terms of your warranty.
Limited Options for Financing
Because older cars tend to be less reliable, lenders like banks and credit unions are hesitant to give you money to buy a car. Think about it: How motivated would you be to pay back a loan on a car that broke down a year ago and is now sitting in a junkyard?
For this reason, you may find that your financial institution will place limits on the age of the car you want to buy.
Bank of America, for example, won’t finance cars that were made more than 10 years ago. Chase won’t finance cars older than five years, while Wells Fargo only limits loans to 48 months for cars that are 7 years or older.
During my recent search for a used car, I tried to avoid vehicles that had multiple owners, mainly because I felt like cars with fewer owners undergo less wear and tear.
In fact, Carfax, the company which made vehicle history reports an important element in car buying, says that 80% of car shoppers want a car with one owner. Why? For the same reasons I just mentioned – less wear and tear.
If you buy a new car, you’re the only owner. But the older a car gets, the more likely it is to have multiple owners.
That being said, we want to remind you that the one-owner suggestion is a general principle and not a scientific fact. For example, if a totally irresponsible, messy owner treats their car like junk, never changes the oil and tries to run the car into the ground, their car obviously won’t be as in good of shape as a car owned by three different people who babied it.
Unfortunately, that’s not something a vehicle history report can reveal. No matter how much research you do on a used car, there’s always an element of risk.
A Few Things to Keep in Mind as You Decide to Buy a Used Car
While all the tips we mentioned in this article are helpful for deciding if you’re going new or used, they only serve to get you to the car lot or the private seller. They don’t address a couple of issues we think are important, but not necessarily related to the new vs. used argument. We’ll talk about those issues in this section.
Used at a Dealership
Dealerships sell plenty of used cars as well as new cars and can be a popular choice for people who have a connection with a particular dealership, whether it’s because they know a salesman or have bought a car there before.
That’s totally fine; I bought a used car from a dealership six months ago when my wife and I moved back to the United States after living abroad for a few years. I had about a week to find a car. My search took me all over the place, from private sellers to dealers.
I knew going into it that I’d pay dealership fees at a dealer, and I also knew that used cars from dealerships tend to be a little more expensive than the same cars from private sellers.
Dealerships will also take a car’s color into consideration – popular hues like silver and black will be more expensive than off colors like brown, maroon and turquoise.
The experts at Kelley Blue Book point out that white, silver and black cars tend to retain their value better than off colors, so this may explain why there’s a price difference at dealerships.
Late Model Cars
Plenty of websites, friends, and family out there will say that buying a late model car (one to two years old) is a wise choice because you’re basically getting a new car for the price of a used one. Remember how we said a new car loses value as soon as you drive it off the lot? That’s the principle behind late-model car advocates’ philosophy.
However, Mike Rabkin says that’s not always the case; a spike in late-model purchases over the past few years has driven up prices.
“Starting with the recession in 2008, many consumers had to cut back and bought late model used vehicles instead of new,” Mike says. “While late model used vehicle prices have eased off a little bit from their high, they’re still at historically high levels and it will take years before they normalize.”
His advice? Consider buying new. Loan interest rates will be lower, he says, and you’ll have a full warranty. This is important for those looking for a Kia or a Hyundai, since those manufacturers don’t let you transfer warranties to the second owner.
How to Do a Quick Visual Inspection of a Used Car
When I went used car shopping, there were points where I got really frustrated. My wife and I wanted to stay within a certain price range – around $8,500 – but still find a foreign-made car that was in good physical shape, had no accidents, carried around 100,000 miles or less and had no broken components (radio, windows, etc.).
I found out pretty quick that visual inspections of the engine, as well as physical inspections of all the power components, is really important.
The Gashed Accord
What I quickly discovered was that it was really hard to find a car that met our criteria. The first day we shopped, we found a goldish-brown Honda Accord sedan within our price range, but the color was a little weird and it had a rusted gash on the driver’s side door.
The Fading Kia
A few days later I found an amazing deal on a Kia station wagon far below our budget ($5,999). I went to the dealership to look at the car, only to find that the paint on the roof of the car was oxidized and once-black door handles had faded to a whitish grey.
The Rusty Camry
I found yet another car – this time, a Camry – within our budget, but when I showed up to the dealership and took it for a drive, the power mirrors worked only half the time. After the test drive, I opened the hood and found the engine was all rusted over.
The Silent Sportage
I thought I’d found our match when a Kia Sportage popped up in my Auto Trader search results. However, when I took the car for a test drive I discovered the radio didn’t work. After doing a visual inspection of the car, I found that the cover to the spare-tire compartment in the trunk was missing.
Eventually, we found our match – a foreign-made SUV within our budget in which everything worked great, the body was in good shape and the engine was sparkling.
My tips for inspecting a used car:
- Make sure all the windows work.
- Try the A/C.
- Move the mirrors and seats (if they’re powered).
- Look at the engine compartment for rust and oil stains.
- Walk around the car and look for scrapes and dents.
Those are just my suggestions, though. O.J. Lopez has his own set of recommendations as well. Here’s what O.J. says you should do when you’re giving a used car the once-over:
- Look at the body panels from different angles. Does the light reflect off the pain in different ways? It might be evidence the car has been repainted due to a previous collision.
- Take the car to a trusted mechanic for an inspection. They’ll tell you if the car is in good shape, and if it’s worth the price you were quoted.
And, as always, ask the owner of the car for a vehicle history report. Most dealerships have them, and they can be hit or miss with private sellers. While these reports aren’t perfect, they’ll help you know how many owners the car has had, as well as any reported accidents and maintenance that have taken place.
Knowing When to Say No
I want to take you back to my recent experience of buying a car as we close out this article. One of the hardest things about buying a used or new car is the mental energy it takes. If you’re doing your shopping right, you’ll constantly be thinking:
- Did I check all the components to see if they’re working?
- How many owners has this car had?
- How does the engine look?
- Did I notice anything weird on the test drive?
- Do I trust the salesman?
- What does vehicle history say?
- What does my gut tell me about the car?
This can get really tiring, and there may come a point where you just want to buy a particular car because it’s the easiest thing to do.
When you get to that point, go get some coffee or grab a meal. Give yourself a chance to take a mental and physical break. Why? Salesmen will sense that you’re tired and they’ll use that as leverage. But that’s not the only reason.
You need to stay on top of your game because the right car is out there. The more you search, the clearer your idea of the ideal car becomes. Don’t get discouraged if the perfect car online ends up being a less-than-stellar car in person. Keep the search going. Stick to your standards, and eventually, you’ll find the car you need.
Saying “No” is an important part of the process of buying a car. Once you reject a car, you’re more willing to pass on vehicles that don’t meet your criteria. And that means you’ll be one step closer to finding the car that does.
Our Bottom Line on Buying a New Car vs Used
There are a lot of different factors in your decision to buy a new car or used car. Both types of cars have their pros and cons.
New cars are more expensive and force you to deal with salespeople, but they’re more reliable than used cars and they usually come with warranties, rebates, and low-interest rates. You also have the luxury of going to one dealership for a wide variety of cars … it can make the buying process very simple, especially if you need a new car fast.
The downsides? You’re going to pay a lot more than the average used car, the vehicle’s value will drop dramatically as soon as you drive it off the lot and you’ll have to deal with salespeople and their tactics in order to get the car you want.
On the other side of the purchasing decision are used cars – they’re cheaper than new cars, they let you skip the whole dealership saga (saving your money from markups and fees) and you can find one for just about any budget.
However, the cars have more wear and tear on them and they usually have multiple owners.
Our advice is to do your homework: find out what kind of car you want, do searches for private owners and dealerships, know how much you can spend and understand the pros and cons of new and used cars.
When you arm yourself with those mental weapons, there’s a good chance you’ll find the right car at the right price!
» More Tips and Advice on Buying a Car:
- Common Used Car Buying Scams and How to Avoid Them
- Financing Your Car: 6 Expert Tips on Landing a Great Auto Loan
- Carvana Review: Is It Really a Better Way to Buy a Used Car?