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Buying a New Versus a Used Car

Aug 26, 2019

Buying a New Versus a Used Car

Doing research prior to making milestone financial commitments like purchasing a home or a car is crucial. If you aren’t sure what route you should take – renting or buying, new versus used – it can be intimidating when you’re sitting across from a salesperson in a car dealership and it’s time to ask all of the necessary questions. That’s why we’re here to educate you about the benefits and drawbacks of buying a new car or a used car before you even get to the dealership.

Benefits to Buying a New Car

In addition to that new car smell that we all know and love, there are many practical benefits to purchasing a new car. With no driver history, a new car is likely to be more reliable than a used car, so you can be confident that you probably will not discover any damages to the vehicle that were hidden at the time of the sale. But in the event that something does go wrong and you need a repair, you can rely on the factory warranty, which is included with most new cars and will most likely cover a repair.

In addition to the factory warranty, there are a variety of deals and perks that can come with a new car, like low interest rates. If you’re taking out a loan to purchase your car, keep in mind that loans on new cars tend to have better interest rates than those taken out on used cars. Also, some dealers will even offer cash back deals on new car purchases, which will bring the overall price down and take off some of the financial pressure.

Even though the thought of purchasing a new car can seem overwhelming, today’s innovative safety features (like blind spot monitoring, anti-collision warning systems, etc.) and in-car technology (like park assist, built-in GPS, and smartphone connectivity) can enhance your overall driving experience and give you a great bang for your buck.

Drawbacks to Buying a New Car

While purchasing a new car may be the right path for some, there are a few financial drawbacks to consider. New cars are more expensive than used cars, and according to Kelley Blue Book, the average new car in 2019 costs nearly $38,000. In addition to the higher sticker price, the insurance cost is also more expensive than that of a used car.

The biggest drawback to purchasing a new car, however, is the fact that it starts to depreciate in value the moment you drive it off the lot and will continue to depreciate in value every year. According to Carfax, a new vehicle’s value can decrease by 20 percent in the first year of ownership and 10 percent annually for the next four years. If you choose to trade the car in after five years, it can be worth as little as 40 percent of its original purchase price, and you will not be able to get that lost money back.

Benefits to Buying a Used Car

When you buy a used car, you are not the one taking the financial hit in regards to depreciation, because the initial owner(s) already did. So, if you sell the car a few years down the road, depending on its condition, you may be able to sell it for a price similar to what you paid for it.

Probably the biggest benefit of purchasing a used car is that overall, it’s less expensive. The sticker price is generally lower than that of a new car, which means you may be able to afford a higher quality car, whether it’s a better model or from a better manufacturer. You may also save money on insurance costs as a low-cost used car generally requires less insurance coverage, but interest rates for used car loans tend to be higher, so make sure to check with your credit union to learn about the options they have available. For example, PFCU offers a fast loan approval process and some of the lowest rates around.

Drawbacks to Buying a Used Car

When purchasing a used car, it’s important to consider that you won’t know the car’s full history. While vehicle history reports are available, you will only know if an accident was reported, not how a car was driven by its previous owner(s). This means that later on, your car may require service to mend any wear and tear, regardless of whether or not the car was ever in an accident.

Unlike brand-new cars, most used cars do not come with a warranty, so you wouldn’t be covered the same way should the car need a repair, which is more likely as it ages. Most importantly, make sure to take mileage, year, and number of owners into account, as these can heavily influence the life and quality of a car.

Take all of this into consideration when surfing the web for your next ride, and know that whether you choose to purchase a new or used vehicle, you can always lean on PFCU to offer some insight into what works best for you!

Erin Ellis

Erin Ellis
Accredited Financial Counselor ®
Philadelphia Federal Credit Union
eellis@PFCU.COM
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