Once the decision has been made by an individual to purchase an automobile, many questions arise regarding the purchase. Among the most commonly asked questions are whether to select a new car or a used car, whether to lease a car or buy a car, as well as whether to use dealer financing or find private financing. In this article, we will focus on the pros and cons of purchasing a new or used car.
The primary concern most people have when buying a car is whether they will get a fair price. The price varies for both new and used cars. Before purchasing a car, do your homework, and research prices that are comparable to the type of car you are considering. Generally, with a new car, you can negotiate the purchase price with the dealership. Today, the Internet makes it easy for an individual to know more about cars, as well as the normal price range of a specific car. If you enter the dealership armed with information on the car you are considering, you should be able to receive a price that is fair to both you and the dealer. Generally, the more common the vehicle, the easier it is for you to negotiate a purchase price. It is typical to be able to negotiate the price of a new car for a few hundred dollars above the cost. It will be more difficult to negotiate the price of high-end luxury cars, because the supply is minimal and demand high for those cars. Dealers are more likely to stay close to the sticker price.
The major advantages of buying a new car are:
- You will be the first owner;
- Full factory warranty;
- Lower finance rate;
- No mileage limits, and/or
- Ownership and equity in the vehicle.
The major disadvantages of buying a new car are:
- Higher monthly payments;
- Higher insurance rates;
- Owner usually has to make a down payment, and/or
- Owner takes the hit for depreciation.
The strongest testimony against buying new is that of depreciation, or residual value. The moment a new car is driven off the lot, the value drops by hundreds, sometimes thousands of dollars. A new car loses approximately 45% to 50% of its value within the first three years of ownership, and continues to fall each year. How much it depreciates depends on the make, reputation, popularity, mileage and condition. On the basis of depreciation above, a new car is a poor choice as it is almost instantly worth less than what you paid for it.
Pricing of a used car is more difficult. With a used car, you do not necessarily know what you are getting. The real value of a used car depends on many factors such as, how old the car is, if the car has ever been in an accident, the condition of the frame or body work, mileage, etc. It is important when comparing similar used cars that these factors are taken into consideration. While one major point of buying a used car is to spend less money than on a new car, buying the lowest priced car is not necessarily the best option.
The major advantages of buying a used car are:
- Lower purchase price;
- You do not have to take the hit for the initial depreciation;
- Cheaper insurance, and/or
- You pay less for the previous year’s car with the same features.
The major disadvantages of buying a used car are:
- May have no miles (or very few) left on factory warranty;
- You may spend more money on an extended warranty;
- Car is older;
- Parts are older;
- Unknown maintenance habits of previous owner, and/or
- Higher finance rate.
In conclusion, it is not recommended that a person risk their savings or budget to buy a new car. If higher payments are not feasible for you, a quality used vehicle is a wiser choice. If you can afford a new car, here is the bottom line: Today’s cars are built to last with longer warranties being offered. After five or more years of ownership, depreciation becomes relatively unimportant. If you can afford a new car and want one, go for it! Regardless of which type of car you purchase, it should fit your needs: Is it comfortable? Does it drive well? Is it practical? Most importantly, you should take the time to shop around. Be prepared when purchasing a car. For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or [email protected].