New Or Used? The Car Buying Guide
Should you buy a new or used vehicle? Here are the things you should consider while figuring it out.
Life, Death, and Taxes
Well, one of those anyway. This is a no-brainer. The more money you spend on a purchase, the more you’ll pay in taxes. So, if you buy a new car, you’ll pay more sales tax. But, as a knock-on effect, you’ll also pay more for your registration and insurance. Those services are also responsive to the overall transaction price of your vehicle. So, pay less to pay less? Sounds good to me. But that’s not all.
This is the big one. Most people don’t understand that depreciation is the biggest cost of new vehicle ownership. They might assume that it’s registration or insurance because we can see those costs come out of our bank account. But driving a new car off the lot technically costs you 10% of its value. After the first year of ownership, new cars will have depreciated approximately 25%. If you paid $40,000 for your new vehicle, it will be worth roughly $30,000 one year later. Obviously that rate of depreciation is unsustainable. If it did, new cars would be worthless after four years (and that’s only true for Fiats). In reality, depreciation rates slow down significantly after the first few years of ownership.
Obviously, this is a big opportunity for used buyers. Allowing a vehicle’s original owner to pay for most of the depreciation cost will save you a ton of money. Subsequently, you’ll save on registration, insurance, and taxes because of the lower transaction price. And now that manufacturers only really update their vehicles every five years, you can get the latest features on a older car. Finally, used buyers get a research advantage. With the help of tools like J.D. Power’s long-term dependability study, you can rule out vehicles that may have seemed reliable when they came off the production line.
Of course, there are many reasons not to buy a used, too. You’ll miss out on the best years of your vehicle’s life. However, if that’s the most important thing to you, you wouldn’t be considering a used car in the first place. It will also be harder for a used buyer to get the perfect combination of features and styling. You might end up settling for the wrong colour or interior materials. And, depending upon how old the vehicle is, you may not have any of the manufacturer’s warranty remaining. Finally, you may not necessarily save as much money as I’ve led you to believe.
While depreciation rates, taxes, and insurance will continue to hit new buyers the hardest, things are beginning to change in the world of new sales. When you buy a used vehicle, you save on insurance, registration, and depreciation. But, if you’re financing your vehicle, much of those savings can go out the window in a hurry. 0% financing rates on new vehicles is no longer uncommon. Additionally, manufacturer incentives can save you thousands. If you’re buying a used car, you’re not receiving manufacturer incentives and you certainly won’t find 0% financing.
So, if you’re still taking a long-term loan on your used vehicle, the savings you made will have be eaten up by the interest rate. In that case, you should definitely buy new (especially if you can secure 0% financing. That way, you get the best years of your new vehicle’s life, a manufacturer warranty, and you won’t pay more than the what you see on the window sticker.
New or Used?
Ultimately, with all of the information available about MSRPs, market values, and sales prices, it’s a good time to be a buyer. The power is in your hands, so pull out the calculator and figure out how to get the most bang for your buck, whether it be new or used.