It can happen to anyone sooner or later. The old clunker gasps its last smoky gasp at the side of the road, and you're left to face a costly reality: You need new wheels. A shiny new car would be appealing, but your know-it-all friend says buying used is the smarter choice in the long run. Here's how to decide which is right for you.

Key Takeaways

  • New cars come with the latest safety features and are very likely to be reliable.
  • Used cars are generally cheaper because the high depreciation of their early years is already behind them.
  • Certified pre-owned cars are more expensive than other used cars but may be in almost-new condition.

New Car: The Pros

There's no denying the curb appeal of a brand-new car, from that new-car smell to the shiny paint, the clean interior, and the "oohs" 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 the world know you've arrived (literally). Cosmetics aside, a new car also has some other advantages.

Reliability and warranty protection. Most new cars have good reliability records, and if anything does go wrong, it's probably covered by the manufacturer's warranty. Buying new also means that you have no concerns about how the vehicle was treated before you bought it.

Free roadside assistance. Many new cars come with roadside assistance. This can save you the cost of paying for coverage on your own or being stuck with a towing bill if your car breaks down.

The latest features. New cars are likely to meet the latest fuel efficiency standards and also have the most up-to-date safety features.

Attractive financing deals. Many carmakers and dealers offer financing programs with low or no interest if you have good credit. That can make it less expensive to finance a new car than a used one.

New Car: The Cons

Of course, new cars also have a few things going against them.

Expensive to buy. Buying a new car is hard on the wallet. If you're using an auto loan to finance the purchase, you'll most likely borrow more than you would with a used car and end up paying more interest over time.

Quick to depreciate. New cars depreciate more quickly than their used counterparts. A vehicle loses the most value in the first few years of ownership—and a huge chunk of that in its first few seconds off the lot. By some estimates the instant loss can be 20% of the car's value. That's because when you purchase a new car from a dealer, you're paying the retail price. As soon as you're off the lot, the car is only worth its lower, wholesale price. This is the amount the dealer would be willing to pay if you turned around and tried to sell it back.

Costlier to insure. New cars also have higher auto insurance costs than used models, because their replacement values are higher.

Not new forever. 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 may be stained, the doors dinged, and that sweet new-car smell will be just a memory. Of course, the monthly payments will linger for years.

Important

Before you buy a used car, the Federal Trade Commission recommends getting an independent inspection and obtaining a vehicle history report.

Used Car: The Pros

"Pre-owned vehicles," to use the marketing jargon for used cars, may lack the mystique of new cars. But they have some advantages.

Lower prices. By the time a vehicle comes on the used-car market, much of its depreciation has already happened (and been paid for by the prior owner). So buying used is an opportunity to get more car for your money.

Lots of life left. Most modern cars will go 100,000 miles or more with few mechanical difficulties. So buying a car with 50,000 miles on the odometer could mean 50,000 or more miles of trouble-free driving ahead. For all practical purposes, low mileage, late-model used cars are basically new. If you trade your car in every few years, the way some people do, you aren't likely to notice the difference between a used vehicle and a new one.

Warranties available. Some vehicles now come with warranties that cover the most expensive components of a car's drive train for 200,000 miles. If you buy a certified pre-owned car from a dealer, you're likely to get a warranty that extends the manufacturer's original warranty. (Certified pre-owned cars tend to be more expensive than other used cars, but they have also been rigorously inspected and spruced up, as needed.) Of course, if you're handy with a wrench, buying a car that needs a little time and attention can dramatically reduce your cost. 

Used Car: The Cons

Whether or not they're under warranty, used cars still come with some potentially pricey unknowns. Because you don't know how the car was treated by the last owner or why it was traded in, there is always the danger of buying somebody else's problem. Some other concerns:

Higher maintenance costs. Even if a used car is perfectly sound, it may need maintenance or repairs sooner than a brand-new car, including items like new brakes, new tires, and assorted belts and hoses.

Limited selection. It can be challenging to find a used vehicle with the exact options and features that you want.

Fewer consumer protections. If you find you've purchased a lemon, you may have less recourse than you would with a new car because lemon laws often apply only to vehicles under a certain age and with less than a particular number of miles on the odometer.

So Should You Buy New or Used?

Whether to buy a new or used vehicle isn't entirely a financial decision. While used cars tend to be cheaper—at least initially—you may not be able to get all the features you want without making some compromises. Unless you're in a huge hurry to buy, it can pay to look at both. See what's available on the used lot as well as in the new-car showroom, compare the price differential, and ask yourself which option you, and your finances, would be most comfortable with down the road.