Should You Buy a New or Used Car?
When in the market for a car, you may assume that new cars will last longer before needing repairs and will have a higher resale value when you're ready to sell. However, a used car can be a better choice, even if you consider potential mechanical issues and a car's resale value. Note a few factors to consider that can help you decide if you really want a new car, or if a used model is actually the better choice for you.
Depreciation
A new car may seem like it would better maintain its resale value over the years, so that you would get more money for it than a used car, once you're ready to sell. However, new cars depreciate in value the minute you drive it off the lot, and that depreciation can sometimes be steeper than the depreciation of a used car.
As an example of how this works, if you buy a new car that depreciates by 10% every year, after two years, you've lost 20% of you purchase price. If you buy a used car that depreciates only 3% every year, after two years, you've only lost 6% of your purchase price. You would then get back a higher percent of your initial purchase price by buying the used car with a lower depreciation rate than the new car that depreciates so quickly.
Reliability
Assuming that a new car will mean fewer mechanical difficulties than a used car can be short-sighted; some models of cars are known to be very problematic, whether new or used. Other models are known to be very reliable and may run without any mechanical breakdown for several years, even when used. Rather than assuming that any new car will be a better mechanical investment than a used car, research the reliability of car models, both used and new, and bring your own mechanic to check out potential used car purchases so you can see if they would be just as mechanically sound as a new car.
Hidden costs
Consider, too, that there are hidden costs with buying a new car that you may not be considering; you need to remember the interest rate for loans, additional charges for warranties that you may not actually need, the cost of replacement parts for when the car does need repair, its gas mileage, and the cost of insurance. When all these costs are compared to the actual cost of a used car, you may see that the used car is actually the better overall financial investment.
