It happens to everyone. The old clunker gasps its last smokey gasp at the side of the road, and you're left to face a sickening reality - you need some new wheels.
The ads on television all scream in your ear, "New Car! New Car! New Car!" A shiny, clean new car does sound appealing, but you've also heard from your annoying know-it-all friend who says buying used is actually the smarter choice in the long run. It's a tough decision to make. In this article we'll explore the pros and cons of buying new and used vehicles to help pick the car that is right for you. (Leasing a new car is also an option; to learn more, read Pros And Cons of Leasing Vs. Buying A Vehicle.)
New, Glorious New
There's just no denying the curb appeal of a brand new car, from that new-car smell to that shiny paint, the clean interior to the "ooohs" and "aahs" when your friends see it for the first time. In our consumer culture, a new car is an undeniable status symbol that lets everyone know you have arrived (often literally). Cosmetics aside, purchasing a new car also comes with a host of other positive attributes.
It's new! Most new cars have good reliability records, and if anything does go wrong, it's probably covered by the warranty. Buying new also means that you have no concerns about how the vehicle was treated before you bought it. (For related reading, see Extended Warranties: Should You Take The Bait?)
Many new cars also offer roadside assistance. This provides peace of mind and saves you the cost of paying for a roadside assistance program on your own, or for towing expenses to your home if you are stranded on the side of the highway.
New cars are also likely to offer the highest fuel efficiency standards and the latest safety features, such as side-curtain airbags and structural reinforcements. Many companies even offer financing programs with low or no interest rate, making it less expensive to finance a new car than a used car.
Buying a new car is hard on the wallet. Not only do new cars cost more than used cars, but they depreciate in value more quickly too. A vehicle loses the most value in the first few years of ownership. It actually loses a huge chunk of value in its first few seconds off the lot. In other words, when you purchase a new car, you pay the retail price - the price a dealer charges for a new car. As soon as you're off the lot, the car is worth wholesale price. This is the amount the dealer would be willing to pay if you turned around and tried to sell your car back.
Unfortunately, the difference between these two values can be massive. According to Blue Book, the manufacturer's suggested retail price for a 2007 Ford Focus two-door hatchback is $14,335. The used-car private-party resale value for the exact same car is $11,995. That's a loss of $2,340 for driving the car off the lot.
Buying a new car means that you are both incurring higher debt and losing value more quickly than if you had purchased a used car. New cars also come with higher insurance costs than used models, as replacement values are higher. (For more insight, read Shopping For Car Insurance.)
On a more philosophical level, buying a new car fosters a culture of conspicuous consumption, not a culture of frugality. Instead of making a practical transportation decision, you are buying into the culture of consumerism and its ongoing quest for the latest and greatest toys. Not only is this an expensive proposition, but it is likely that next year something even better will hit the market, making your costly purchase obsolete. (To learn more about conspicuous consumption, check out Stop Keeping Up With The Joneses - They're Broke and Save Money The Scottish Way.)
Finally, new cars don't stay new for long. In a day, a week, or a month, you'll get your first scratch or nick. By the end of the first year, the floor will be stained, the doors will be dinged, and the thrill of having a new car will be long gone. Of course, the monthly payment will linger for many more years.
Used, Humble Used
While "pre-owned vehicles" (marketing jargon for used cars) lack the mystique of new cars, they sure are hard to beat when it comes to practical financial reality. Buying a late-model, low-mile vehicle can be a bargain hunter's dream come true.
Buying used is an opportunity to get the best car for your money. You can often find a late-model used car priced at less than half the cost of a new one. Pre-certified dealer programs offer strong warranties, often including the remaining balance of the factory warranty, and the opportunity to purchase an extended warranty. For all practical purposes, low mileage, late-model used cars are basically new. If you trade your car in every few years the way many people do, you aren't likely to notice the difference between a used vehicle and a new one because most modern cars will go 100,000 miles or more with few mechanical difficulties. Buying a car that has 40,000 miles on the odometer is likely to result in 60,000 or more miles of trouble-free driving. Some vehicles now offer drive-train warranties that cover the most expensive components of your drive train for 200,000 miles.
If you are low on cash and willing to take a chance, you can even get a car for just a few thousand dollars, and maybe even a few hundred. If you are handy with a wrench, buying a car that needs a little time and attention can dramatically reduce your acquisition cost. (If you're the "fixer upper" type, check out some real estate investing tips in Fix It And Flip It: The Value Of Remodeling.)
Despite the warranties, used cars still come with that unknown reliability stigma. Because you don't know how the car was treated by the last owner or why it was traded in, there is always that fear of buying somebody else's problem. Even if the car is perfectly sound, you will need to perform required maintenance sooner than on a new car. This maintenance includes things like radiator and transmission flushes, new breaks and new tires.
On a more practical level, it may be challenging to find a used vehicle that comes with the options and features that you want. You also have less recourse if you have purchased a lemon, as lemon laws often apply only to vehicles under a certain age and with less than a certain number of miles on the odometer.
New or Used?
The decision to purchase either a new or used vehicle should be based on a number of factors. You need to be comfortable with financing options, as well as the long-term implications for your personal financial situation. You need to feel safe, and you'll need a vehicle that is reliable. Finally, you need make sure your new car meets your needs in terms of comfort features and amenities.
Buying a car is major financial decision. Aside from the purchase of a home, it often qualifies as one of the largest purchase many people make in a lifetime - so make sure to research and enjoy the ride!
For additional insight into cost-effective car buying, read Wheels Of A Future Fortune.
Stock AnalysisLearn about three value stocks Warren Buffett holds in his portfolio. See how Buffett uses market declines to find good deals on stocks.
Stock AnalysisLearn about Whole Foods Market, Inc., and discover how Whole Foods pricing actually compares to that of other grocery store operations.
Stock AnalysisLearn about the four quick service restaurants with attractive investment theses and growth prospects that can be valuable additions to your portfolio.
Stock AnalysisUnderstand how Coca-Cola implemented the successful "Share a Coke" campaign. Learn about the top three reasons why the campaign was successful.
Stock AnalysisIf you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
Stock AnalysisLearn about the top six companies that make an attractive investment for investors looking for stocks for dividend income investing.
Mutual Funds & ETFsObtain information on, and analysis of, some of the best performing mutual funds that offer exposure to the consumer cyclicals sector.
InvestingAll businesses face adversity, and Procter & Gamble is no exception. We take a look at recent developments affecting this global giant.
Investing BasicsPlain vanilla is a term used in investing to describe the most basic types of financial instruments.
EconomicsThe manufacturer’s suggested retail price (MSRP) is just what it describes – the price manufacturers recommend that retailers charge for their goods.
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>