Should I Buy a New or Used Car for My Next Vehicle?
If you’re in the market for your next vehicle, you have two buying options: new or used. New cars are shiny and attractive, splashed on every car ad you see. On the other hand, used cars are often more financially responsible options. For everyone wondering, “Should I buy a new or used car for my next vehicle?” this guide can help you!
Initial Costs of New Versus Used
First and foremost, the cost of a new vehicle is always higher than the cost of a comparable used vehicle. Cars depreciate quickly in their first few years (more on that later), so used vehicles are much less expensive. When you compare the price tags, used cars seem like a steal.
Here at Peters Auto Mall, we encourage buyers to be realistic about their budget. We don’t want you to overspend for a dream car only to feel financial stress in a few months. Because used cars are less expensive, you can satisfy champagne tastes on a beer budget! In other words, your money will go further. So, you can get a nicer model if you choose used. We can work with most budgets to find a car you’ll love. At dealerships, there is very little flexibility for new car pricing.
In order to qualify for an auto loan on a new car or truck, you’ll also need a substantial down payment. Many lenders want at least 20% upfront, which is a sizeable chunk of change when buying new. Because the price of a used car is lower, the down payment requirement will be lower too.
Also, remember that when the cost of the car is lower, you’ll pay less on your initial taxes and fees and on your property tax in the future. Many inexperienced car shoppers don’t realize that these costs are typically not included in the advertised price of the car. The state tax alone can be up to 8.1% depending on where you live! Here in North Carolina, you’ll pay a highway use tax of 3% of the car’s value. This can be up to $250 for a new car. Additionally, you’ll pay a vehicle property tax based on both the value and your county. Click here to learn more about North Carolina fees, as well as fees in other states.
In general, most people find that used cars simply fit more easily into their budget. Often, you can find a great deal on a car that is just one model year older. Plus, we’ll walk you through the process of figuring out a budget if you aren’t sure what to expect. Before you start shopping, you can even use our pre-approval calculator by clicking the button at the top right.
Understanding Depreciation and Upside-Down Loans
You may have heard the saying that a car loses half of its value the moment you drive it off the lot. This isn’t necessarily true for most cars, but it is definitely closer to the truth if you buy new! When you buy a new car, you’re the first owner. You’re paying for that privilege. Even if you only own it for one day, the next buyer will be the second owner. So, they won’t pay nearly as much as you did.
If you keep your car in pristine condition, it will still depreciate the most within the first year. As you own the car, depreciation will slow down. Barring any damage, the car depreciates less with each year. As a used car buyer, you’ll lose less of the car value over the time you own the car.
For example, let’s say you buy a car for $30,000. After three years, you decide to sell it, and the car is now valued at $15,000. You “lost” $15,000 due to depreciation!
Now let’s say you buy that used car for $15,000. After three more years, it may still be worth $10,000. In your three years of owning it, you only “lost” $5,000 due to depreciation.
Different makes and models depreciate at different rates. Some used cars actually hold their value very well. However, all new cars depreciate a large amount as soon as you buy them. They don’t lose 50% unless you get into an accident, but they can lose up to 30%.
This is scary if you intend to purchase the car using an auto loan, as most buyers do. It can mean that you very easily start with an “upside-down” loan. An upside-down loan happens when you owe more on a car than it is worth. With almost all auto loans, you’ll be required to put some money down, which can help prevent upside-down loans. When you buy a new car, however, depreciation happens quickly at first. It’s very easy to find yourself owing more money than the car’s value. Remember, interest increases the total amount due on your loan.
Why does this matter? Well, if your car is totaled or stolen, your insurance will typically pay a maximum of the value. So, if you owe $25,000 but your car’s value is only $20,000, you’re on the hook for that missing $5,000! Yes, you could have to pay monthly payments on a car you no longer own. Worse still, many auto loans say that the entire amount is due immediately if you no longer own the car. While most lenders will work with you in this situation, it can be a huge financial stress. After all, you’ll also need to buy another vehicle to replace the one you lost.
With a used car, it is much less likely that you’ll face an upside-down loan situation. It can happen. However, used cars typically do not depreciate faster than you can make loan payments. If the worst happens and your car is totaled or stolen, you’ll have some breathing room. Your insurance would cover the remainder of the loan, plus give you additional money to use for your next vehicle.
Insurance and Registration Savings
Speaking of auto insurance, did you know that you’ll typically save money if you buy used? In most cases, used cars cost less than new cars. So, insuring you is less risky. The price of your monthly premiums depends on several factors. However, the car’s value is a big factor they’ll use to set your premium.
Additionally, cars with a lower value will cost less to register. All private cars cost $36 to register here in North Carolina. But here’s what some people don’t know: to register your car, you also have to pay the property tax. Your tax rate depends on where you live, but the state calculates it based on the car’s value. Therefore, the lower the value, the less you’ll pay in total for registration plus taxes. You pay these fees annually, so they can really add up.
No matter what type of car you buy, it will need regular maintenance. This includes oil changes, tune-ups, annual inspections, and more.
Some people worry that with a used car, they’ll need more maintenance and repair work. This can be true in some cases. However, it really depends on the car you buy. In some cases, a well-maintained used car will need fewer repairs than a new car.
You can mitigate the amount you’ll need to spend on car maintenance and repairs by shopping with Peters Auto Mall. When you buy a car from us, you never have to worry about buying a lemon. We perform a 125-point inspection on every vehicle. This goes above and beyond what is required for a typical state inspection. When we sell a car, we want you to be completely confident in what you’re buying. You can count on driving away with a reliable car. If we wouldn’t let a member of our family buy it, we won’t let you buy it either.
When you do need maintenance, as every car does from time to time, give our service department a call. We’ll perform the tune-ups and other maintenance to keep your car in great shape and get you back on the road as quickly as possible.
Researching Your Car Options
If you’re wondering, “should I buy a new or used car this time?” you’ve probably already been researching options. You’ll probably find that it’s much easier to do research on used cars. With new cars, there isn’t as much information, other than details from the manufacturer. Of course, real customer reviews are less biased than the manufacturer’s opinion. After all, they want you to buy their brand instead of any other.
We recommend reading real customer reviews whenever possible. You’ll find more reviews on older models since they’ve been around longer. Also, keep in mind that people’s opinions on a car may change over time. At first, they may love their new car. Over time, though, they may find that it needs too many repairs or the associated costs are too high. With used cars, you can read what people think about a car after a year or two of owning it.
Additionally, read reviews from third parties, like Consumer Reports. You want as much information as possible in order to make your decision. As with owners, third parties often update their reviews over time. After all, it’s impossible to know after a few months on the market if a car will have long-term issues. Some cars seem great at first, but end up having major problems down the road. Instead of trying to sell you a car, we inform you by showing you a Carfax report on any car. Knowing the maintenance record of a vehicle helps in the decision-making process.
As you’re researching, feel free to reach out to us for a test drive. We’re happy to schedule a test drive on any vehicle in our inventory. Along with reviews, this is the best way to get a feel about whether or not a car is right for you. Our team members are super knowledgeable about all the cars on our lots. If you aren’t sure where to start researching, we can help. Come in today to learn about the makes and models that might work for you.
New Car Technology – Is it Better?
One advantage of new cars is that the technology may be better. When you buy a new car, you can get all the bells and whistles. This includes the latest technological advances. Every year, we love seeing the new features offered on new cars.
Did you know that these features can often be retrofitted onto older cars? Also, buying a used car means that you may find a recent model whose owner purchased a lot of optional luxuries at new-car prices! You’ll benefit by having them on your pre-owned car and not paying those high prices for the options!
It really depends on what interests you most. However, don’t let a missing feature like a DVD player or Bluetooth stop you from buying used. In many cases, our cars are less than five years old. They may already come with the features you want most. Sometimes, we can add the features you want, or you can even easily add them yourself.
New technology is exciting, but is it really worth the extra money? The answer isn’t always yes!
Warranty Protection when Buying Used versus New
When you purchase a new car, it always comes with a warranty. This is the manufacturer’s promise to you that nothing will immediately need repair work. If you’re spending tens of thousands on a new car, you want it to work.
What most people don’t know is that warranties cover many used cars as well!
The FTC requires us to show you information about every vehicle’s warranty. Each car on our lot has a buyer’s guide showing whether a car is still under warranty. Today, many manufacturers offer a 5 year/60,000-mile warranty. Many cars on our lot fall within this time frame and mile limit.
Even if a car is “as is,” you can choose to add on an extended warranty. We can go over the cost and limitations for any warranty you decide to purchase.
Your Shopping Options: New Car Dealers versus Other Sources
If you’re shopping for a new car, your options are limited. New cars come straight from the manufacturer and you can only find them at dealerships. While you might have a few dealership options, the price is going to be comparable everywhere.
With used cars, you have more choices. Here at Peters Auto Mall alone, we have three used car lots. So, not only do you have options for the car itself, but you also have options about where to buy.
This is important because customer service can be an issue at some big-name dealerships. They know you don’t have many options, so it is an excuse for sub-par customer service. Our team at Peters Auto Mall takes customer service very seriously. We have been in the Piedmont Triad for more than 25 years and we are a family-owned business. Our focus has always been on our customers. After all, we want you to recommend us to your friends and neighbors! In fact, we guarantee the best car buying experience possible!
Should I Buy a New or Used Car – Final Considerations
At the end of the day, making the choice to buy new or used is a personal decision. Some people love the cool aesthetic of a brand-new car. Others enjoy the financially-friendly options used car lots have to offer. Since cars now have a much longer life than ever before, many people realize that buying a pre-owned vehicle is a smart choice! If you have any questions at all, contact our team. We’re happy to walk you through the car buying process so you can make the right decision for your family.