One of the first decisions buyers have to make is whether to buy a new car or a used car, and it’s a long-term commitment you need to be sure of.
Would a lease be less expensive than a car loan? Would buying a used car mean giving up some tech features?
Let’s look at some things you need to consider before buying a used car vs. a new car.
Buying New Vs. Used Car
New cars are, well, new. They generally come with the latest features and technologies and haven’t been driven by anyone else.
For some people, this is important when car buying. They want a car that has that new car smell and hasn’t been used by anyone else.
On the other hand, used cars can be a great value and save money. They may not have all the bells and whistles of a new car, but they’re usually significantly cheaper.
And, if you buy from a reputable dealer, you can be confident that the car has been thoroughly inspected and is in good condition.
New Vs. Used Car Depreciation
There’s no denying that buying a new car is a significant investment.
But many people don’t realize that as soon as you drive your new car off the dealer’s lot, new cars begin to depreciate.
In fact, according to some estimates, the average car can lose up to 20% of its value in the first year alone.
Used cars depreciate much slower after buying them- it doesn’t depreciate so quickly! Generally, a used car will hold its value much better than a new one simply because it has already taken the initial hit.
Of course, there are exceptions to this rule (for example, luxury cars or those with exceptionally high mileage), but generally, you can expect a used car to retain its value better than a new one.
If you’re planning on keeping the car for a long time and aren’t concerned about the latest and greatest features, a used car is the way to go.
But if you’re looking for a short-term investment, want the option to lease, want that new car smell, or plan to sell the car in a few years, a new car might be the right choice.
When deciding whether to buy a new or used car, one important factor is the debt you’re willing to take on when looking for a car.
New cars will typically have a higher monthly payment than a used car since you’ll be financing a larger purchase price. You’ll need to plan your debt payments and see what you can feasibly afford.
With a used car, you’ll typically have a lower purchase price and monthly payment, making it easier to stay within your budget. However, choosing a reliable used car that won’t require frequent repairs is essential.
As a result, it’s essential to carefully consider your financial situation before committing to a new or used car loan. If you’re uncomfortable with taking on significant car debt, opting for a used car may be the wiser choice.
Funding Your Options
There are a few options when it comes to funding your brand new car or a pre-owned vehicle:
- Pay in cash, which is the simplest option and often gets you a lower price
- Get car loans from a bank or other lending institution
- Lease the car, which means you make monthly payments but don’t own it
Whichever option you choose, be sure to do your research and shop around for the best deal to save you money. Financing your car should be a significant decision, and you want to ensure you’re getting the best possible terms.
Loans: Interest Rates
Many factors determine the interest rate on auto loans, but one of the most important is your credit score.
Your credit score measures your financial health, and lenders use it to assess your riskiness as a borrower.
The higher your credit score, the lower your interest rate will be on your new car loans. Check your credit score using Credit Karma, which offers a free credit score and report, updated weekly.
If you’re interested in getting the best possible rate on your auto loan, it’s worth taking some time to improve your credit score before applying for an auto loan.
There are some ways to do this, but some simple steps include paying your bills on time, paying off debt, and maintaining a healthy balance on your credit cards.
Following these tips can give you a better chance of getting a low-interest rate on your new or used car loans.
Whether you are buying a new or used car, there are a few things you need to know about down payments.
A down payment is the amount of money you spend purchasing something big or expensive. The more you can put down, the lower your monthly payments will be.
The larger your down payment, the lower your interest rate will be. This is because a higher down payment shows that you are less likely to default on your loan.
However, not everyone has a large amount of money saved up for a down payment, and it can take time to get there, so the sooner you start, the more money you’ll have toward buying a new car or used car.
The average down payment on a new car is 20% of the total purchase price, although you can put down as little as 0%.
For used cars, the average down payment is 10%, although you may be able to put down less depending on the vehicle.
Cost Of Ownership
In addition to the upfront cost, there is also the cost of ownership to consider- things like insurance, gas, and maintenance.
Over time, these costs can add up, so it’s important to factor them into your budget.
New Cars Maintenance
When buying a new car, don’t forget about the maintenance. A brand new vehicle tends to require more frequent servicing than older models.
This is because new cars have more complex systems, like automatic emergency braking and adaptive cruise control, that must be regularly serviced.
You also must keep up with maintenance, like oil changes and tire rotation. All these costs can add up, so it’s important to be aware of them before making new car deals.
Certified Pre-owned Cars Warranty
Certified pre-owned cars come with a warranty with bumper-to-bumper coverage and covers maintenance and repairs. This can save you money in the long run, as you won’t have to pay for major repairs out of pocket.
Even if you buy a used vehicle that isn’t one of the certified pre-owned vehicles, you may still be covered by the manufacturer’s extended warranty.
However, this will likely only cover things like defects- not regular maintenance.
Older Used Cars Repairs
Older cards may have hidden maintenance costs that can add up over time, like being less fuel-efficient, but there are also repair costs.
Older cars may need more expensive repairs as they age because parts are harder to find.
For example, engine parts for an older engine may not be the same as newer engines, plus old engines are more likely to require tune-ups and repairs.
In addition, used cars may not come with manufacturer warranties, so any repairs will need to be paid for out-of-pocket.
Your auto insurance company rates will also be affected by the car you choose. In general, newer and more expensive cars will cost more to insure than older and less expensive ones.
If you’re looking to save money with lower car insurance rates, you may want to consider an older or less expensive used vehicle.
Of course, the make and model of the car will also affect your insurance rates. Some cars are more expensive to insure than others, regardless of age or price.
For example, luxury and sports cars tend to have higher insurance rates than sedans or SUVs. You may want to avoid these vehicles if you’re looking for a car with low car insurance costs.
Another thing to consider when budgeting for buying a new car or used car is the gas mileage. Newer cars tend to have better gas mileage than older models, so they will cost less to operate.
However, newer cars also tend to be more expensive than older ones. You’ll need to decide whether the savings in gas costs is worth the extra upfront cost.
Also, if you’re looking for a vehicle with good gas mileage, you may want to consider a smaller model. Smaller cars tend to have better gas mileage than larger ones.
New Car: Pros & Cons
- Better reliability
- Less maintenance
- Can lease
- New vehicles have a car warranty
- Never been owned before
- Higher initial cost
- May need more frequent servicing
- Repairs can be expensive
Used Car: Pros & Cons
- Lower initial cost
- Depreciation has already occurred
- Lower insurance rates
- Registration fees may be lower
- Repairs can be expensive
- No manufacturer warranty
- Sold as-is, which can be bad when buying from a person and not a dealership (Buyer Beware!)
Tips For Buying A Used Car
With some research and planning, buying a used car can be a simple and stress-free process.
First, do your research when car buying. Find out what kind of used vehicles you want and what price range you’re looking at.
Do you want a certified pre-owned car or any kind of warranty coverage?
Look up the Kelley Blue Book value of the makes and models you’re interested in to get an idea of their worth before making a car purchase.
Once you have an idea of what you want, start shopping around. Look at different car dealerships and private sellers to find the best price on the same car.
Once you’ve found a few cars you’re interested in, take some test drives. This will allow you to see how a car handles and if you actually like the size and feel of it.
When you’ve found a car that fits your budget and is comfortable to drive, use Carfax to get a detailed vehicle history report of the car’s previous owner, maintenance records, and accident history from the car dealers.
It’s also a good idea to have a mechanic inspect the vehicle before buying it if you’re buying from someone instead of a dealership. This will help you identify potential problems that may not appear at first glance.
Buying Vs. Leasing New Car
For many people, buying a shiny new car is the culmination of years of hard work and saving. It’s a way to finally get the perfect vehicle that fits their needs and budget.
However, there’s another option for getting a new car: leasing.
When you lease a car, you make a monthly payment to use the vehicle, but you don’t own it outright.
At the end of the lease, you can either return the car or buy it from the dealership.
So which is better, buying or leasing a new car? It depends on your circumstances.
It may be the better option if you have the cash on hand to buy a car outright. However, leasing could be the way to go if you’re looking for lower monthly payments.
When you are in the market for a new vehicle, you must decide if you want to buy a new vehicle or a used one. Both have benefits and drawbacks that you should consider before making your decision and spending your money.
New cars will generally be more expensive than used cars and have quick depreciation coming off the lot. But they will also likely have better gas mileage and all of the latest features for a better driving experience.
On the other hand, used cars are typically cheaper and may already come with some upgrades or aftermarket additions.
Buying a used car may be more affordable but may not have all the bells and whistles of a new model. They may also have more wear and tear and require more maintenance.
Some new car buyers prefer the peace of mind that comes with buying a new car, knowing that it has no history and is under warranty.
Others prefer the savings they can get by buying a used car, which is often more affordable than a new car.
Ultimately, deciding whether to buy a new or used car depends on your budget and needs, so sit down and find out what downpayment you can save for in CIT Bank and what monthly payments you can afford.