Buy a new car or a used car? Is this a trick question? Many personal finance experts recommend buying a used car versus a new car because it has already depreciated some of its value and you get a better deal. Particularly if you find a used car off a lease and it was well maintained. Many car dealers offer certified used cars with warranties and you save 30-40% over new.
The internet has made shopping for cars much easier. Buying a car is never a fun process, but a little information makes it more transparent and you can negotiate with the dealer much easier. I remember a time when I went to a dealer and he would not return my keys, until I heard what they offered. Another time, they took hours to just wear me down. Those experiences made me change the way I bought a car. I would use fleet managers or a car broker to get the best price.
Since I was shopping for an economical car, I was faced with higher used car prices. Specifically, my wife wanted a Honda Civic and the used car market in Los Angeles was tight! The prices were high for three year cars. I did some research and realized demand was high for certain cars with a low supply of cars. New car dealers were offering great deals and even financing at zero percent. I was looking for a low mileage three (3) year old Civic and found one for $16,000.
I checked with a car broker I used two years ago and he found one for $800 below deal invoice about an hour from home. I went on the internet and located the same one twenty minutes from home for $700 less. The price was just one thousand ($1,000) above the three year old civic. Dealer financing at zero percent, full warranty and only fourteen (14) miles obviously swayed me. Hmmm, a new car matched or exceeded the value of the used car! High demand used cars are overpriced!
I normally buy new cars and keep them forever! My last car was a Honda Accord (coupe) I had for seventeen (17) years. I traded my wife’s Honda Prelude seventeen (17) year old car for the civic. In both cases, the cars served us well, but needed significant repairs in the $1-2,000 range. It was equal or exceeded the car’s Kelly Blue Book value. It was time to make a decision and I decided to unload. Our plan is simple to sell one of the cars when my wife and I retire in three years.
Final thoughts
Some of you may have trouble with my thinking or disagree that new cars in some instances make more sense. I think it is an individual decision for a variety of reasons. It depends how long you will keep it and how you drive it. In concept, I agree it is better to buy an asset that already depreciated some of its value. Some cars depreciate differently. High gas prices have contributed to the higher prices and short supply. Should you buy a new car or used car?
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I think it all just depends. There are many cases right now where a brand new car can be cheaper than a used car because of rebates and dealerships trying to move cars.
Generally speaking, it usually are economical cars.
Heya! I’ve bought both used and new cars. Won’t be buying a new car anytime soon due to the hit on depreciation. But if my net worth was high enough then I’d probably do it as I could take that kind of hit and not worry about it.
I have some relatives that buy new but like you they drive the car till it dies (10-15-20 years). For them it makes most sense since they drive a lot. They also pay cash only for their cars (as do I).
But if you do buy a new car go at the end of the month/quarter/year or when new models are coming out. You can save a wad of cash by buying a new ‘last years model’ car.
Labor Day is the ideal time to buy last year’s models! Although I agree depreciation is an important factor, certain (the more economical ones) used cars are very close in price to the new ones. Add the rebates, special financing and deals. I bought my car at $1,500 below dealer invoice!
I would only buy a brand new car if it was a hybrid/gas saving vehicle. I’m interested in buying an electrical operated vehicle.
A couple years ago, I bought a hybrid at dealer invoice. I thought it was a pretty good deal. My wife wanted a Honda Civic which is very popular and got it $1,500 below dealer invoice.
When personal finance starts dealing in absolutes nothing good follows! I’ve long argues that there is much to be said about driving new cars – if nothing else, they are usually improved technology better for the environment and your pocket (less petrol use, less tax, less repair bills). We even lease new cars. And if someone is tempted to call me a bad name, just think and do the maths: in three years you pay less on the lease (particularly if you have a company) than the depreciation. So, well done, Krant! A new Honda is good.
Thanks! It was all in the numbers and isn’t that what personal finance is about?
The next car I buy will be a hybrid of some sort. The only part that makes me nervous is that if it ever broke down, I don’t think I could just take it to any shop. I would have to bring it to the dealership and have to deal with the ridiculous wait times.
It doesn’t seem to be a problem in Los Angeles! My mechanic can handle it.
My advice is to decide what car you want (clearly within reason) and the determine the best value based on the delta between new and used and the remaining value of warranty.
In other words…some cars are better off buying new (assuming you own for a period of time) vs buying used. However, if you insist on buying certain brands (especially German, Italian, British, etc) I would go low mileage used….no matter what.
I agree! A seasoned BMW, Mercedes or Porsche is the way to go. The more economical Japanese cars are holding their value and prices in the used car market.