Why You Should (and Shouldn’t) Buy a Used Car ?
Why You Should (and Shouldn’t) Buy a Used Car
One of the biggest arguments against used cars is that they might be unreliable. That stigma persists today, even though the standard of automotive quality is much higher. Not very long ago, most vehicles were expected to last as long as 150,000 miles. But now, vehicles are routinely staying on the road until 200,000 miles. The point is, vehicles are much more reliable than they used to be, so buying a slightly used car is no longer a big gamble. In fact, there are tons of advantages.
Quick quiz. What’s the greatest cost of owning a new vehicle? No, it’s not the insurance, plates, or gasoline. The greatest cost of owning a new vehicle is depreciation. Yes, driving your car erodes its (market) value very quickly. Look at the chart below that demonstrates the average rate of depreciation on a new vehicle that cost $30,000.
|Off the Lot||$26,700||11%|
|After one year||$22,500||25%|
|After Three Years||$16,200||46%|
|After Five Years||$11,100||63%|
In the table above, you can see an example of depreciation costs over time. Our example vehicle cost $30,000. After one year it had lost 25% of its value (down to $22,500). Obviously, the rate of depreciation slows dramatically after the first few years (otherwise, your 2014 Escape would be worth $0. In the first year, the value of our example car drops by $7,500. But in the next four years combined, it only drops an additional $11,400.
A smart used car buyer will skip ownership during the first few years of a car’s life and let the original owner incur most of the depreciation. And, in the end, she’ll have retained a greater percentage of her original investment. Plus, we should distinguish between resale value and practical value. Just because you could only sell a used car for 75% of its sticker price after one year, does not mean that it only has 75% of its usefulness or appeal remaining. But how much usefulness and appeal has it lost?
Some people will always drive brand-new cars because being the original owner provides many benefits. First, there is the ineffable joy of newness. Knowing that you’re the first to break in the engine. There are no scuffs on the bumper, no paint swirls, and no coffee imprints on the dash. Certain people don’t notice these imperfections and others struggle to notice anything else.
Drivers of new vehicles also get to enjoy the complete duration of the manufacturer’s powertrain warranty. If a costly and essential part breaks in the engine or transmission, the owner won’t be paying out of pocket. Lessees usually even get routine service like oil changes covered by their weekly payments, which helps with budgeting. Whether or not that peace-of-mind is worth the extra cost will depend on the individual buyer.
Conversely, every used car buyer buys a vehicle past its prime. They also can’t know whether the previous owner failed to replace their oil as frequently as necessary or drove like a rally car savant. As we mentioned earlier, vehicles are vastly more reliable than they used to be. And, when you shop with a reputable company like Capital, that reconditions every used vehicle sold, used car buying experience is thoroughly safe. Plus, Capital offers Certified Pre-Owned vehicles.
Certified Pre-Owned Vehicles
Certified Pre-Owned (CPO) vehicles combine some of the benefits of owning a new vehicle with the cost savings of a used vehicle. Specifically, buyers receive a comprehensive limited warranty, 24/7 roadside assistance, and special low interest rates. Perhaps most importantly, to become certified, a vehicle must pass a rigorous 172-point inspection, so there’s no chance of being sold a vehicle in poor condition.
Obviously, there are advantages and disadvantages to buying new and used vehicles. If you want to get more bang for your buck, skip the cost of depreciation and buy a used vehicle. If you want peace of mind, that brand-new feeling and the lowest interest rates, buy a new vehicle.