The Ultimate New vs Used Vehicle Buyers Guide
When it comes to purchasing a vehicle, one of the biggest initial decisions is whether to buy new or used. Each option has its own set of pros and cons, which can make the decision difficult. In this blog, we'll take a look at the benefits and drawbacks of buying a new vs used car, so you can make an informed decision. There is also a third, bonus option so be sure to read to the end to learn all about it!
Advantages of Buying New
Shopping for new cars is almost as straightforward as grocery shopping; you know exactly what you get because it's coming right off the shelf. Your options are in perfect condition, have no unknown history, and are covered by warranty. You also have the peace of mind of knowing that the vehicle hasn’t been abused or overdriven, have (typically) more financing options at a generally lower rate, and the full range of choices of trim, options, and accessories. Buying new gets you the newest and latest technology, which is more than just gadgets and in-car Wi-Fi, but also the safety features of the vehicle, as well as better mileage as fuel consumption technology continues to improve.
Summary
Reliability: A new car is less likely to break down than a used car, which means you'll have fewer repair costs in the short term. Additionally, new cars typically come with warranties that cover major repairs for several years.
Latest features: If you want the latest safety features, technology, and entertainment options, a new car is your best bet. Newer cars often have features like lane departure warning, backup cameras, and Apple CarPlay or Android Auto.
Customization: When you buy a new car, you can often choose the color, trim, and options you want, allowing you to create a car that suits your preferences
Disadvantages of Buying New
Buying new is more expensive and you will lose some of the value of the vehicle almost immediately after purchase (the most depreciation occurring in the first 3 years). The latter may not be much of a concern if you intend to keep the vehicle for a long period of time, but it's something to note regardless. Though more expensive in cash form, new vehicles allow for more flexibility for the lender and can result in lower monthly payments when compared to used. However, this is sometimes made up in the length of the term, so be aware of abnormally long terms (84 months+). There is also limited selection and it is dependent on inventory availability. Although the inventory shortages cause by supply chain issues from the COVID-19 pandemic appear to be coming to an end, the risk of having limited options in the future remains a possibility.
Summary
Higher cost: New cars are generally more expensive than used cars. If you're on a tight budget, buying a new car may not be an option.
Depreciation: As soon as you drive a new car off the lot, it loses value. In fact, some new cars can lose up to 20% of their value in the first year of ownership.
Limited selection: If you're looking for a specific make and model, you may have to wait for it to be produced and delivered, which can take weeks or even months.
Advantages of Buying Used
The most prominent reason you may choose to buy used are for the cost savings: lower initial purchase prices, less taxes and lower insurance costs. When you buy used, someone else has already absorbed the initial (and largest) depreciation costs. There is a very evident “sweet spot” in buying a car that is approximately 3 years old: you have avoided the period of greatest depreciation, but can still get a nearly new vehicle that likely isn’t over-driven and still has warranty remaining. So if pure value is what you are searching for, buying used may be a good fit for you. Additionally, there tends to be more available selection in used vehicle options since they’ve been around for a while already. This allows you to be able to shop an entire generation of any make or model rather than just 1 or 2 model years and there’s no waiting period.
Summary
Lower cost: Used cars are generally less expensive than new cars. This can be a great option if you're on a tight budget.
Less depreciation: Used cars have already gone through their biggest depreciation hit, which means they can retain their value better than new cars.
More selection: Since used cars have been around for a while, you'll have a wider range of makes and models to choose from.
Disadvantages of Buying Used
However, just like buying new, there are some disadvantages to buying in the used market. Reliability is relatively unknown (service records may not be available or may be unknown), limited options on color, trim, accessories, etc, and there is a greater need to do more research and due diligence ( investigating the vehicle's history for liens, accidents, major repairs, and inspections). Additionally, a used car may have dated technology that may be an inconvenience, certain safety features may not be up to current standards, no purchase incentives and typically higher financing fees/rates.
Summary
Higher repair costs: Used cars are more likely to need repairs, which can be expensive. Additionally, you may not know the full history of a used car, which can make it difficult to anticipate future repair costs.
Limited features: Used cars may not have the latest safety features or technology, which can be a downside for some buyers.
Higher interest rates: If you're financing a used car, you may have to pay a higher interest rate than you would for a new car.
Bonus Option: Certified Pre-Owned (CPO)
Advantages of CPO
Certified Pre-Owned vehicles are a great compromise for consumers looking for nearly new/lightly used vehicles to get the best “bang for their buck”. These CPO programs are offered by franchise dealerships, and provide you with the ability to own a used vehicle with many of the benefits of buying brand new. CPO vehicles have undergone a detailed inspection and safety process that is certified by the manufacturer or dealer. The program also includes extended warranties, and can come with additional benefits like special financing, roadside assistance, and other perks. Generally speaking, buying a CPO vehicle can save hundreds or even thousands on a vehicle, new or used. Current estimates are that a 2 year old CPO vehicle will cost approximately 25% less than a new model, and a 4 year old car will on average be 40% less expensive than a new one.
Summary
Lower price compared to a new vehicle: Certified pre-owned (CPO) vehicles are typically priced lower than new vehicles. This can make them a more affordable option for those who want a newer vehicle without paying full price.
Thorough inspection and refurbishment process: CPO vehicles go through a comprehensive inspection and refurbishment process to ensure they meet manufacturer standards. This can give buyers peace of mind that the vehicle is in good condition.
Extended warranty coverage: CPO vehicles often come with extended warranty coverage, which can provide added protection for the buyer.
Roadside assistance and other perks: Many manufacturers offer additional perks with CPO vehicles, such as roadside assistance, free maintenance, or other benefits.
Better financing options: Financing for CPO vehicles is often available at lower interest rates than financing for non-certified used vehicles. This can help make the monthly payments more manageable for the buyer.
Disadvantages of CPO
However there are some drawbacks to this route as well. In order to provide the warranties and extra perks that a new vehicle usually only comes with, a CPO vehicle will cost more than a standard used vehicle of the same make and mileage. There is even less choice on colors, trim and amenities as usually only 20% of used vehicles can qualify for the OEM CPO program. Finally, CPO vehicles typically have more intensive contracts and agreements, so being diligent in reading over the fine print is important before signing a deal.
Summary
Higher price compared to a non-certified used vehicle: CPO vehicles are typically priced higher than non-certified used vehicles. This is because of the additional inspection and refurbishment process, extended warranty coverage, and other perks that come with a CPO vehicle.
Limited selection compared to non-certified used vehicles: Because CPO vehicles must meet manufacturer standards, the selection of available vehicles may be more limited compared to non-certified used vehicles.
May still have some wear and tear, despite the refurbishment process: Even though CPO vehicles go through a refurbishment process, they may still have some wear and tear. This is because they are used vehicles, and some parts may need to be replaced over time.
May not have the latest technology or features available in newer vehicles: CPO vehicles are typically a few years old, which means they may not have the latest technology or features available in newer vehicles. This may be a downside for buyers who are looking for the latest and greatest features in their vehicle.
Additionally, keep in mind there are two different certifications for CPO vehicles - Dealer and Manufacturer. Dealer-certified cars are authorized by the dealership’s own in-store criteria. Manufacturer-certified criteria are set by the OEM to ensure the same quality of CPO car is met by every dealership in their franchise. Be sure you are clear on which entity is backing the warranty, the dealer or the manufacturer.
Which Option is Right for You?
Buying a new-to-you vehicle can be broken down into a few different categories, each with their own set of pros and cons. Ultimately, you should always look for an option that works with your personal preferences, priorities, and financial situation. Keeping it all within a comfortable personal budget is a great way to get into your next vehicle without feeling anything but excitement.
The best way to do this is by remembering the 20/4/10 Rule: 20% down payment, no more than 10% of your monthly income per monthly payment, and for no longer than a 4 year term. Stay within these parameters and make sure you get what suits your needs best and regardless of the route you choose, your next vehicle shopping experience ought to be a good one.
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