Featured Image When buying a car, one of the first questions to resolve is whether to buy new or used. Here are a couple reasons why I think buyers of used cars often come out ahead.DepreciationAccording to Edmunds.com, a typical new car loses 11% of its value the moment you leave the lot. During the first 5 years, the car can depreciate by 15% - 25% each year. After 5 years, the car is worth only 37% of what you paid for it at the dealership.Many other websites cite similar stats. The make and model of the car certainly has an impact based on its reliability, resale value, and popularity. All of those factors can slow down or accelerate that rate of depreciation.Nevertheless, when you buy a used car, the car’s first owner is the one who has to assume that initial depreciation, not you.PriceNearly all of the cars I’ve ever purchased have been low-mileage used cars. When I bought them, they had between 20,000 and 60,000 miles on the odometer. In each case, the price I paid was several thousand less than if I bought the same model new. Here’s an illustration:2014 Subaru Outback 2.5i with 37,000 miles. Used car price: $20,998vs.2018 Subaru Outback 2.5i new: $27,455In this case, the older car is 24% less expensive than the new one. So in this case, the used car price is actually higher than might be expected. There doesn’t seem to have been as significant a decline due to depreciation. The reason? The Outback is a vehicle that tends to retain its value better than most.FinancingWe offer the same rates for new and used cars. This is a benefit that our members appreciate and one that’s not often available elsewhere.It means that if I am going to finance a vehicle with a loan from VACU, then the loan rate is not a reason to buy new. Typically at dealerships, the best rates are reserved for new vehicles.Let’s say that with my trade-in and some savings, I’m able to put about $5,000 down on the car. Here’s how the difference in starting price will affect the monthly cost for the car:CostNew CarUsed CarPurchase Price27,45520,998Downpayment5,0005,000Amount left to finance22,45515,99848 month (4 year) loan, same rate new & used2.74% APR?2.74% APR?Monthly payment$494.45$352.27So each month, the difference between the new model and the used model comes to $142.18.Over the 4-year term of the loan, the difference is $6,824.64 ($141.47 x 48 payments).One mistake that car buyers often make is focusing on the monthly cost, and not the length of time that the car will be financed. In the illustration above, we are talking about a 4-year term (48 payments) in both cases. That makes it easier to compare apples to apples.One other advantage to buying used? Insurance. The purchase of a vehicle can impact your auto insurance premium. A used car is typically going to cost a little less to insure than a brand new one.On the other handThat being said, there are more than a few reasons that someone might still prefer a new car. The manufacturer’s warranty. A low odometer reading. Reliability. That new car smell.New car buyers can take advantage of special dealer incentives like rebates and 0% financing. Just remember, those benefits are typically based on near perfect credit, or they may require a large down payment or short financing term. Those offers may not fit everyone’s situation.Not black or whiteSo, the question between new or used is not black or white. Nevertheless, I’ve had good success with buying used cars that carry a good maintenance record and have been checked for any previous accidents or damage. And I’m glad to enjoy my “almost new” ride with a lower monthly payment. Glenn B.Being frugal was never a habit I had to work hard to learn; it came pretty naturally to me. But as I’ve gotten older, I’ve seen more and more how money influences the decisions we make in life. I believe everyone has good ideas for reducing spending, saving money, or stretching dollars. I hope my blog posts will spark some ideas of your own.Other stories by Glenn B.
7 Used Car Buying Tips The greatest advantage of buying a used car is that the original owner will have absorbed the costly depreciation that occurs in the first years of ownership. But purchasing a used car comes with a bit of prep work to make sure you’re getting the right car for you at the right price.