When it comes to buying a car, one of the first things you may ask yourself is whether you should buy new or used. Of course, there are advantages and disadvantages to each.
In this article, I’ll take a close look at the benefits and drawbacks of new versus used cars so that you can make the best decision when you buy.
Buying New vs. Used Cars
New or used, a car is a big purchase. Before you buy either, it’s important to know what you can afford and what you need. If your finances allow you to buy a new car with cash or a relatively short loan term, then the benefits of owning a new vehicle may be worth it to you. Still, for most people, buying a used car is a better option.
“My preference is for you to buy a two or three-year-old used car rather than a new car,” money expert Clark Howard says. “Because when you buy a new car, it loses value the minute you drive it off the lot.”
If you’re on the fence about buying a new versus a used car, consider the benefits and drawbacks of each. Also, keep in mind that 2022 isn’t a normal year for the vehicle market. The COVID-19 pandemic and semiconductor chip shortage have led to record-high prices on both new and used vehicles over the past year. Fortunately, prices are finally starting to come down.
If you plan on purchasing a car right away, here’s Clark’s advice for the current market: “If you can buy that three-year-old vehicle for a third less than what a new one would be, then go ahead and buy the three-year-old used vehicle. On the other hand, if the gap is less than that, that would push you more toward buying a new one.”
Here are some additional advantages and disadvantages of buying used versus buying new as well as tips for buying either.
Table of Contents
- Buying a Used Car
- Buying a New Car
- New vs. Used Cars: Which Should You Buy?
Below, you’ll find more detailed information on the advantages and disadvantages of buying both new and used cars as well as how to decide which one you should buy.
Buying a Used Car
While the process of shopping for a used vehicle may not be as straightforward as picking out a new one, there are still definite benefits to buying used.
“I’ve had an obsession forever about why buying a used vehicle is so much better for your wallet than buying new,” Clark says. “For most people, buying used is going to be a much better choice.”
In addition to being less expensive upfront, a used car will also have better insurance rates and a better resale value, Also, you’ll be less likely to get upside down on your loan (owing more than the car is worth). Unfortunately, there are also a few drawbacks to buying used. A used car is often less reliable, is usually sold “as-is” and comes with more expensive financing.
Advantages of Buying a Used Car
While there are both advantages and disadvantages to buying a used car, it’s most likely the best choice for the majority of people. Here are a few of the reasons why a used vehicle may be the best choice for you and your wallet:
- They’re less expensive, which means you can save money or you can afford a nicer car. Before the pandemic, the average used vehicle cost about $17,000, which was less than half the price of a new vehicle at the time. As the vehicle market continues to stabilize throughout 2022, we’ll likely see used vehicles drop back to half the price of a new car. A used car is generally going to be more affordable when you first buy it, when you buy the insurance and when it’s time to pay taxes on it. Because a used car is cheaper overall, you can most likely afford to buy a nicer car. Or buy the same car and keep the savings in your pocket!
- Lower car insurance rates. Buying a used car is going to be more affordable in more ways than one. Generally, insurance is more affordable on a used car because the vehicle has already depreciated. That makes it less expensive to replace if it is damaged in an accident.
- There’s less stress about keeping the car pristine. When you purchase a used vehicle, which has already depreciated, there’s less stress about making sure the car stays nice. With a new car, any dent or scratch can decrease the resale value significantly. With a used car, this isn’t as much of a problem. Whether you’re looking for a first car, a vehicle to drive to work or something to drive the kids in, a used car may be a better option for this reason.
- The resale value will be better on a used car because there isn’t as much depreciation. Even with more dings, scratches and miles, you’ll likely turn a better profit when it comes time to sell the vehicle. Compared to what you paid for it, a used car is going to hold its value much better than a new car.
- You’re less likely to end up upside-down on the loan. Owing more than your car is worth is called being “upside-down” or having “negative equity.” This can be a major problem if anything happens to your car. If you owe more on a vehicle than it’s worth, you may have to continue making payments on it even if you don’t have it anymore. Since a used car is more affordable and doesn’t depreciate as quickly, you’re less likely to find yourself in this situation with a used car.
Disadvantages of Buying a Used Car
Buying a used car is a great move financially. Unfortunately, a used car can come with some disadvantages. Here are a few of the major ones to keep in mind:
- A used car might not be as reliable. When you purchase a used car, you’ll never truly know how the previous owner treated it or what it’s been through. Because of this, a used car may not be as reliable as a new car.
- You might have to compromise on color, features and options. When you shop for a used car, you might have to go with the car that’s the best overall deal or with what’s available in your area. You may have to compromise on the vehicle’s color, interior, features and options. But keep in mind that it’s more important to pay attention to the vehicle’s year, mileage and overall condition.
- Most used cars are sold as-is, so there’s less protection and usually no warranty coverage. This is another reason that buying a used car is a little riskier. If you find a used car that you’re interested in, it’s important to have it inspected by a trusted mechanic before you make a purchase.
- Financing will likely be more expensive. Lenders see a slightly higher risk with financing used cars, so they charge higher interest rates on used car loans. That means you’ll probably have a slightly higher monthly payment. The best way to avoid this is by getting pre-approved for financing before you shop. Be sure to check with your credit union first for the best rates.
Tips for Purchasing a Used Car
If you do plan on purchasing a used car, there are a few things that you can do to make the process a little easier. Here’s what Clark recommends:
“Buying a used car involves a little more risk than buying a new car because you never know how the previous owner treated that vehicle,” he admits. “One way to minimize that risk is to buy used car models that have proven to be reliable. Another way is to get a mechanic to inspect a vehicle prior to purchase.”
If you’re looking for a way to check the reliability stats of a vehicle, Clark recommends Consumer Reports. The magazine publishes an auto issue every April. You may be able to find the most recent April copy at your local library. You can also visit the website to get digital access to the used car ratings for $39 a year or $10 a month.
In addition to doing your research on the type of car that you should buy, also be sure to get the specific vehicle inspected. Because you’ll likely be buying the car as-is with no warranty, it’s important to make sure that everything is in working order. Clark recommends that you find an ASE-certified (Automotive Service Excellence) mechanic. Garages that participate in the Blue Seal program typically feature the most highly trained ASE-certified mechanics. Visit ASE.com to find one near you.
Before you start shopping for a new-to-you vehicle, be sure to read our 7 steps on how to buy a used car.
Buying a New Car
Most likely, a used vehicle is the smarter financial option for you. Still, that doesn’t mean that you can’t get a new car.
“There are a lot of people who love that new vehicle smell; they want that new vehicle,” says Clark. “And if it works for you financially, that’s fine!”
If you’re buying new instead of used, it’s just important to take the time to figure out exactly what you can afford. Here are a few of the biggest advantages and disadvantages of buying a new vehicle.
Advantages of Buying a New Car
Buying a new car has a certain appeal to it, but that’s not the only perk. Whether you’re looking for the latest style, extended warranties or the most up-to-date safety features, a new car may be something you’re interested in. Here are the big perks of buying a new car:
- It’s easier to shop for a new car. If you’re looking for a new car, you don’t have to worry about comparing specific vehicles. They’re all considered to be in perfect condition with no miles and are covered by manufacturer warranties. Because of this, you’ll only need to know what make and model you’re looking for and where you want to buy it.
- There are more financing options available, and you’ll likely get a better rate. For the same reason that used cars are more expensive to finance, new cars are cheaper. Lenders look at risk, and a new car’s value is known. Historically, new car buyers are also less of a risk to lenders when it comes to paying back loans. For these reasons, you’ll typically find more financing options with lower rates for new cars.
- New cars have more advanced technology. Whether you’re looking for improved safety features, connectivity or fuel efficiency, new cars will offer the latest technology. Technology changes so rapidly now that even a five-year-old car can already be outdated. If the latest technology is important to you, a new car may be worth considering.
- Warranties on new cars can provide peace of mind. New cars come with a manufacturer warranty. Generally, these will include bumper-to-bumper coverage for the first three years. The warranty is also included in the cost of the vehicle, which means you won’t have to pay any extra for this coverage.
- There’s no vehicle history. When you buy a new car, you’re the first owner. That means you won’t have to worry about how the car was treated by its previous owner; there is no vehicle history!
- New car deals may be available. You can typically find cash back deals and low or no-interest financing offers that may be able to save you thousands of dollars.
Disadvantages of Buying a New Car
While the advantages of a new car are undeniable, there are definite drawbacks to keep in mind. This is especially true when it comes to making a financially conscious choice. Here are a few of the biggest disadvantages to consider when shopping for a new car:
- Depreciation. A new car will begin to lose its value the second you purchase it and drive it off the lot. This depreciation will continue at a pretty high rate during the first few years of ownership. Because of this, the resale or trade-in value of a new car isn’t going to be nearly as good as the original cost.
- More expensive, more debt. A new car is going to cost more than a used car. This is true in nearly all cases outside of vintage vehicles. Because a new car is more expensive, you’ll be in more debt if you’re financing. That means you’ll have higher monthly payments, and you’ll likely pay more in interest over time.
- Higher insurance rates. In addition to being more expensive upfront, new cars are more expensive to insure. Replacement values are higher for new cars, which means you’ll have to pay more for insurance.
- You’ll have to buy the car from a dealer. When you’re shopping for a used car, you have a few different options of where to buy it: car dealers, used car stores, used car websites, private listings and more. You have to purchase a new car through a dealership, which may make your ability to negotiate the price difficult.
- Sales tax is expensive. In most states, you will have to pay sales tax. Because a new car is so much more expensive than a used car, so is the sales tax.
Tips for Purchasing a New Car
If you do decide to purchase a new car, Clark’s advice is to make sure you can afford it. He has a rule to help you figure that out:
“If you cannot afford the payment per month on a 42-month loan, you’re buying more vehicle than you can afford. Taking out a longer loan to get a more affordable payment is a big, fat warning that you’re hurting yourself, harming your finances and limiting your options in life.”
If you feel that a new car fits into your budget, there’s no harm in considering it. Just like with a used car though, you’ll want to figure out your finances first and get pre-approved before you buy.
For more tips on how to buy a new car, check out Team Clark’s five-step process.
New vs. Used Cars: Which Should You Buy?
Ultimately, there are both advantages and disadvantages to buying a used car and to buying a new car. Still, for most people, a used car is going to be the smartest financial decision.
“Because the average used vehicle is (normally) less than half the price of a new vehicle, without a doubt, I want you to go with a used vehicle — not new,” says Clark.
While the pricing of both new and used cars is still high right now, Clark expects the prices to continue gradually decreasing throughout 2022. You can find more information on the best time to buy a car here.
If you are considering buying a new car, make sure that you can afford the payment on a 42-month loan. Otherwise, you’re buying more than you can afford. If instead, a used car makes the most sense for you, just be sure to do your research. Check out Consumer Reports’ recommendations and get a mechanic to inspect a vehicle before you buy it.
No matter which type of car you decide to buy, get pre-approved before you try to make a purchase. You’ll likely find the best rates at a credit union. It’s also a good idea to determine how costly it is to repair and insure the vehicle. Finally, be sure to shop around for the best price or best overall deal. If you’re shopping for a used car, don’t forget to check the book value of the car and look at the car’s history before considering it.