Should I Buy a New or Used Car? Pros and Cons
If you’re wondering whether to get a new or used car in the year ahead, there isn’t one single answer. Each car shopper’s situation is likely to vary, and you need to make the decision that best suits your needs and your budget. Factors like the features you’re seeking in a car, price, insurance costs, and depreciation may come into play.
To help you decide where to spend your cash if you plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus tips for making your choice.
Key Points
• Choosing between a new or used car involves evaluating multiple factors like features, price, depreciation, and insurance.
• New cars provide the latest features and warranties but depreciate quickly and are costly.
• Used cars are more budget-friendly and depreciate more slowly, though they might have reliability issues.
• The purchase decision often hinges on price and depreciation, with new cars losing value faster.
• Personal preferences can dictate the better value; new cars for features and warranties, used cars for cost savings.
Pros and Cons of Buying a New Car
For some people, there’s nothing that can compete with the allure of a bright and shiny new car. However, it’s important to consider the pluses and minuses before making your purchase.
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Pros:
• Pristine condition
• Latest features
• Warranty and service benefits
• Multiple financing choices
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Cons:
• Immediate depreciation
• Higher price
• Higher insurance costs
• Limited ability to negotiate
Pros
• 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.
• Latest 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, longer ranges in the case of EV vehicles, 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.
• Multiple 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 and should have no structural problems, maintenance, or repair issues. That’s important to auto loan financers, who place a premium on avoiding risk.
Next, learn about the potential downsides of buying a new car.
Cons
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 in value, plus 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.
• Higher 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 $47,452 as of late 2024, 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. Also, since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.
• Less room to negotiate: New car models may be less negotiable in price than used ones. Because they are the latest shiny new thing, demand may be higher and inventory lower. A dealership may be less likely to knock down the price for this reason, while they might do so on a used car sitting on the same lot.
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Pros and Cons 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. However, there are other benefits and downsides to consider as well.
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Pros of buying a used car
• Lower price
• Slower depreciation rate
• Your down payment may go further
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Cons of buying a used car
• Reliability issues
• Fewer options
• Maintenance costs
Pros
• 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 $25,571, a considerable savings.
• 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 farther: 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 $25,000 used vehicle with a down payment of $15,000, there’s only $10,000 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. Buying a used car could leave more money in your budget to put in a high-yield savings account for emergencies or another purpose.
Cons
When deciding whether to buy a used car or not, these potential disadvantages may also be worth considering.
• Reliability issues: 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.
• Fewer options: 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. In other words, it may take more time and have you spending more from your checking account to keep the car running.
Is It a Better Value to Buy a New or Used Car?
As noted above, there’s no one-size-fits-all answer to whether a new or used car is the better value, but often, a used car is considered a better value. This is because, with a used car, depreciation has already occurred, meaning the price is lower. In this way, you may be able to get more car for the money you’ve earmarked for this purchase, and the car could have a better resale value. Insurance costs may be lower as well.
Is It Easier to Get Approved for a New or Used Car?
In general, it’s considered easier to get approved for a new car loan vs. one for a used car. That’s because new cars are thought to be less risky since they are new, without wear and tear issues. Their value is thought to be simpler to determine.
It’s worthwhile to consider how your credit score could impact which loan offers you might qualify for:
• If you have very good or excellent credit (say, 781 or above), your interest rate as of late 2024 would typically be close to 5.08% APR (annual percentage rate) for a new car or 7.41% APR for a used car.
• If you have good to very good credit (between 661 and 780), your APR for a new car would be close to 6.70% APR and 9.63% APR for a used car.
• If you have a credit score that’s in the fair range to lower good range (between 601 and 660), you’d likely be assessed an APR of close 9.73% APR for a new car and a 14.07% APR for a used car.
• If your credit score was between 501 and 600 (in the lower section of the fair range), you may have a more difficult time accessing financing and could expect to be charged close to 13.00% APR for a new car and 18.95% APR for a used car.
• Have a lower score, in the 300 to 500 range (poor)? You might expect to face challenges getting financing. Those who do offer you a loan could charge close to 15.43% APR for a new car and 21.55% APR for a used car.
Consider Buying a New Car If…
As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. Here’s when buying new may be your best option:
• If you can afford what is likely to be the higher price tag of buying a new car and loftier insurance costs (as noted above), then you may want to go ahead and buy the latest model.
• You want the latest bells and whistles: If you feel you need an auto with certain new features (whether it’s the design or a safety system), then you may opt for this year’s model.
• If you are financing your purchase, you may be able to get a more favorable APR when buying a new vs. used vehicle. Doing research on how to get a car loan can help you prepare for this path.
Consider Buying a Used Car If…
For some people, though, buying used can be the wiser choice. For instance:
• If you have a fixed budget, a used car will generally offer a lower price and possibly lower insurance costs, too.
• Is there a feature you need but can’t afford in a brand new car? A used car may suit your needs. For instance, 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.
• If you want to avoid the steep depreciation that comes with buying a new car, a used car may work better for you. It may help to know your car will retain much of its purchase price in the coming years. This could be helpful if, say, you know you’ll be selling the car in a year or two and want to forecast how much you’ll net to put in an online bank account.
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 the type of budget you use.
As you would with any major purchase decision, you’ll want to shop around, check the book value of preferred vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition. You may also want to make sure it’s inspected by a trusted mechanic.
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The Takeaway
The choice between a new and used car likely will depend upon your personal preferences and financial situation. New cars may have the latest features and lower maintenance and financing costs, but they tend to be pricier and trigger higher insurance costs. And they will depreciate rapidly. A used car will usually have a lower sticker price but maintenance costs and higher rates on financing should be noted.
As you think about car financing that best suits your needs, 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, and because they don’t depreciate as rapidly as new cars, they can be a better deal.
What are options to buying a new or used car?
Buying a certified pre-owned car, which has been vetted to be in very good condition, or leasing a car are other options you might consider when thinking about buying a new or used car.
Photo credit: iStock/Ivanko_Brnjakovic
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