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.
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?
Photo by: Flickr