If you’re wondering whether to get a new or used car in the year ahead, sorry: Neither is bound to be a bargain. Car prices have been high lately, thanks to inflation, semiconductor shortages, and other forces. Unfortunately, prices aren’t likely to drop in 2024, but they may stabilize vs. creeping higher still. That fact may push some shoppers towards more affordable used cars vs. chasing that new car smell.
But each car shopper’s situation is likely to vary, and you need to make the decision that best suits you and only you. To help you decide where to spend your cash if you do plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus learn about some other options.
Benefits of Buying a New Car
For some people, there’s nothing that can compete with the allure of a bright and shiny new car. Consider the benefits of buying brand new as you answer the question, “Should I buy a new or used car?”:
Pristine Condition
With a new car, you don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.
Multiple Auto Financing Choices
It’s often easier to get a good financing deal with a new car vs. a used car. That’s because the vehicle hasn’t been driven, has no structural problems, maintenance, or repair issues, and should hold its value if the new owner takes good care of the vehicle. That’s important to auto loan financers, who place a premium on avoiding risk.
State-of-the-Art Features
Some people may feel “the newer the car, the better.” Here’s why: The auto industry is doing wonders with new vehicle construction, with features like better gas mileage and technological advancements that improve vehicle performance. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.
Warranty and Service Benefits
New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, extended car warranties may be available, and auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.
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Drawbacks of Buying a New Car
Some disadvantages of a new car purchase might sway a buyer’s decision.
Immediate Depreciation
The moment you drive a new car off the dealer lot, it loses several thousand dollars and an estimated 20% in the first year of ownership and then 15% annually for the next few years afterward, which is not a fun fact when you are making car payments at the same level month after month.
Price
Saving up for a car is a big undertaking, and you may owe a lot of money on a new vehicle. The average price for a new car is currently $48,000, which is a significant figure.
Higher Insurance Costs
Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. Research recently found that the average cost of minimum auto insurance was $622 per year and full coverage was $2,014. Since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.
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Benefits of Buying a Used Car
Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle.
Lower Price
No doubt about it, most used cars sell for significantly less than a new car with the same make and model. You learned above that the average new car is retailing for just under $50,000. How about used cars? The average is currently about $30,000, a considerable saving.
Slower Depreciation Rate
New cars tend to lose value quickly, as noted above, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.
Your Down Payment May Go Further
Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math — if a buyer purchases a $30,000 used vehicle with a down payment of $15,000, there’s only $15,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $48,000, and puts $15,000 down, that buyer still owes $33,000 on the auto loan.
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Drawbacks of Buying a Used Car
When deciding whether to buy a used car or not, these issues may be worth considering.
Reliability Can Be an Issue
With a used car, an owner may be getting a quality vehicle — or maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.
Less Choice
You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of makes, models, and colors for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to someone who is buying new and can often get their dream car, down to the last detail.
Maintenance Costs
You may pay more for vehicle maintenance. Auto repairs often cost more over time and become more frequent too as a car ages. So you may well pay more for maintenance and repairs with a used car. With a very old car, finding parts to complete repairs may also be a challenge.
Top Considerations When Choosing to Buy a New or Used Car
As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. However, these are among the key concerns to think over:
• Budget: How much can you afford?
• Which model car you truly want: If you really need a vehicle with a third row of seats but can’t afford one brand new, that may lead you to a used car.
• Financing options: You want to feel certain that you’ll be able to get the car you want with affordable terms, so thinking about how to get a car loan makes sense.
• Maintenance profile: Factors such as vehicle reputation and repair history matter as well.
By weighing your choices on these fronts, you will likely be able to make the right move, both in terms of the car you buy and how well it fits into your household budget.
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Other Car Purchasing Options
Auto consumers don’t have to be limited to a “buy new or used car” purchase decision. There are other valid options that go beyond the question of “should I buy a new or used car”: buying a pre-owned car or leasing a vehicle.
Certified Pre-Owned Cars
Car buyers who want to know that a vehicle is ship-shape, but who don’t want to spend a great deal of cash on a new set of wheels can compromise with a certified pre-owned vehicle.
A certified pre-owned vehicle means just what it says — it provides buyers with a vehicle that has low mileage, has no significant damage, has passed a battery of auto shop maintenance and performance tests, offers a new warranty, and likely costs thousands of dollars less than a new car. While you won’t be getting a brand-new car, you are likely getting a vetted and trustworthy vehicle at a decent price, which fits the bill for legions of would-be car owners.
Leased Cars
By leasing a car, you’re not buying it, you’re just renting it for a fixed period of time, usually with the option to buy the vehicle at the end of the lease.
Most auto leases average three or four years, and upfront costs are typically less than purchasing a new car (lease owners pay an upfront fee plus regular monthly payments for the duration of the lease period.)
Car leases do come with restrictions on key performance elements like mileage, and also require that the vehicle is returned in top condition when the lease period ends. Ignoring those issues can lead to hefty fees charged by the lease provider and owed by the leasing customer.
About 20% of all new cars are leased in the US, with the average lease being $487 per month vs. the average of $548 for a new car payment.
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The Takeaway
Are you wondering, “Should I buy a new or used car?” Like any major purchase decision, prospective auto buyers are advised to shop around, check the book value of favored vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition, and (if it’s a used car) make sure it’s inspected by a trusted mechanic.
By doing these things, the choice between a new and used car can get easier and enhance your chances of driving away in the vehicle that best fits your auto needs and your financial needs. As you think about the latter, you may want to make sure that your banking partner is the right one, too, and is helping your money work harder for you.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Do used cars require more maintenance vs. new cars?
You may pay more for maintenance on a used car vs. a new one. Typically, older cars need more work than their younger counterparts.
Are used cars a better deal than new cars?
Used cars can be more affordable than new ones, from the sticker price to the insurance costs.
What should be expected from new and used car prices in 2024?
Car prices have been high, and currently they are expected to stabilize, but not drop, in 2024.
Photo credit: iStock/Ivanko_Brnjakovic
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