Should You Buy a Used or a New Car?

In today's market, buying a car is not an investment because its value depreciates so quickly after such a short period of time. 

As a result, you need to be cautious regarding its cost-effectiveness. For example, how pricey is the car compared to the number of miles you would drive it? Is it really worthwhile to get a car if you just travel short distances every day?

There’s plenty to consider, and in this article, we we’ll explore the advantages and disadvantages of buying new or used vehicles.

It goes without saying that buying a used car will usually always be cheaper than buying a new one – unless you’ve got your eye on a timeless classic.

When buying used, you have the freedom to shop around at a variety of dealerships, as well as private sellers on sites like Autotrader or even eBay.

If you’re looking to buy a new car, you may find some useful financing deals or bargains by visiting a dealer – they may be desperate to get a car off the lot and may be willing to do a deal.

According to CoPilot's return to normal index 202, average used car listing prices increased to $33,341, a 0.5% month-over-month increase, and just $172 below the used car market’s peak in March 2022. Overall, used car prices are now $10,046, or 43%, above their projected normal levels – a new all-time high for the Index.

For new vehicles, the average price in the U.S. reached a new record of $48,301 according to a report from vehicle valuation company Kelley Blue Book. 

Wondering what that would mean for your monthly payments? The average monthly payment for a new car has increased by 18.5%, from $554 in 2019 to $667 in 2022. Meanwhile, the average price of used cars increased significantly, from $391 to $515, a difference of 27.4%.

There’s a lot to consider before buying a new car. Below, we explore the potential pros and cons to help you make a decision:

Pros of buying a new car

• It’s new – The real advantage of purchasing a new car is that you’re the first owner. So there’s no need to worry about the hassles of cataloging defects on a used car.

• Warranty – When buying a new car, you usually get the manufacturer's warranty that gives you certain rights or guarantees should the vehicle not work properly. 

• It’s yours – The car will be yours to do whatever you wish. A custom paint job, upgrades, and add-ons – you name it, and you can do it!

• Tech – Take advantage of all the latest and greatest gadgets that a new car possesses – phone apps, digital keys and so much more.

• Safety – Car technology is evolving significantly, and new cars are at the forefront. You can expect a new car to be ultra-safe with features like blind-spot monitoring or cruise control.

• Fuel efficiency – Thanks to new emissions laws and technology advancing, cars today are far more fuel-efficient than ever before. New cars are likely to include stop/start ignitions and direct fuel injection.

• Low maintenance – Dealers will often offer free maintenance for a year when you buy a new car. Plus, new cars tend to need fewer trips to the garage overall.

• Less work – Buying a new car is far easier than buying a used one, mainly as the salesperson will take care of everything for you. Just tell them what car and add-ons you want, and they’ll do the rest.

• Lower rates – A lot of people will use a bank to finance their vehicle purchase, and banks offer cheaper financing rates on new cars. This is because new cars are more valuable and have not yet depreciated in value.

Cons of buying a new car

• Depreciation – Driving a new car off of the lot after buying it loses around 10% of the vehicle's value straightaway. Or say you take a five-year auto loan, your new car is going to be worth around 40% of the price you paid.

• Insurance – Even with a squeaky-clean driving record, most people who drive a car full-time are going to pay at least $1,000 per year in coverage. In some cases, like with young drivers, this is likely to be even higher.

• Investment – Buying a car is not a good investment unless it's a classic car that holds its value. In the long run, you’re going to make a big loss should you choose to sell the vehicle and upgrade at some stage.

• Ownership – If you buy a new car through financing or an auto loan, then the car isn’t actually yours until you’ve paid in full. So should you default on any payment, the lender can seize the car, leaving you in a muddle.

• Down payment – Because new cars have such awful rates of depreciation, your hand is forced into providing a significant down payment to keep the vehicle as a meaningful asset.

• Damage – If you damage a new car, it's going to be an expensive fix. Plus, it’s frustrating when you’ve paid so much for something, and then you see it littered with dents and scratches, ultimately reducing the value of the car.

Much like with new cars, buying used cars come with an element of risk, but also some useful quirks. Below, we summarize the pros and cons of buying used:

Pros of buying a used car

• Cost friendly – When buying a used car, you can shop around for an absolute bargain. Some dealers might be desperate to get cars off the lot, and private sellers might be looking for a quick sale that could save you thousands.

• Cheaper insurance – Your car insurance costs are largely determined by the value of your car. The more valuable your car is, the more cost is used to insure.

• Depreciation – Used cars lose value more slowly. A car that is three years old would probably only lose about 10% of its value during the first year of ownership, as opposed to 20%.

• Quicker payoff – Loan terms for used cars are typically shorter than those for new cars, allowing borrowers to finish paying off their cars sooner.

• Extended warranty – A lot of used cars are still covered by the factory warranty, and it’s really easy to transfer this to a new owner. Most dealerships offer a range of warranty options for used cars, especially if they are Certified Pre-Owned cars.

• Variety – Every year, new car models are introduced, and while there are plenty to pick from, the selection of new cars is much smaller than that of used cars. Buying used cars means a greater selection of models.

• Reviews – When you purchase a used car, you can also access a wealth of first-hand information on the vehicle on social media, such as YouTube reviews, remarks on automotive forums, and Facebook groups or automobile pages.

Cons of buying a used car

• Compromising – You may need to make compromises on your dream car, as it’s unlikely you’ll find the exact model car you’re looking for when buying a used one.

• Car history – Before finalizing any sale, it is advisable to take the vehicle to a reputable technician for a checkup, which should include an engine and brake inspection. For the mechanic's work, you should budget about $100, but it will be well worth it.

• Maintenance costs – A used car will need additional upkeep and repairs over time, even if it is in quite a decent condition. When deciding between new and used, take your long-term budgeting into account because this could reduce the savings you gain from your initial purchase.

• Outdated – The lack of the newest features, safety technologies, and driving aids can make or break the ownership experience of a car. You'll be stuck with older and outdated tech from the start.

There is a lot to consider when thinking of buying a new or used car, and a lot of that comes  down to personal preference. Things like your budget and what you want from a car will ultimately be the main deciding factors.

Here are some things to ask yourself as you’re making your decision:

What can you afford?

If money is tight, then buying a new car is likely to be a bad choice. With through-the-roof prices for insurance and down payments, the upfront cost alone is scary enough. 

You are likely to save money when buying new on costs like maintenance and repairs, as new cars are often protected by a guarantee. Plus, they’re new – things aren’t likely to just break.

Buying a used car comes with its pitfalls too, but you do get the benefit of shopping around. There are thousands of manufacturers, models and so much more to choose from. You may even be able to snap up a bargain if you buy privately.

The risk is that they may have mechanical issues you aren’t aware of. Instead, you’re just relying on the word of the seller. Used cars are also more likely to run into problems along the way.

What features do you want?

If you’re someone who needs the latest gadgets or wants the best security features available, then buying a new car is likely to be a good choice.

However, some cars may include some features as standard, but often you’ll often have to fork out extra money for new car tech.

Used cars may come with decent additional features, but they may be hard to find, and if you do, the cost might still be quite high if it's a newer model.

Also, you can examine the safety rating of a car using the resources on the National Highway Traffic Safety Administration’s website if you have any worries about its security.

What is the maintenance cost?

An older vehicle might cost more to maintain, which is something to keep in mind if your household's budget is tight. Much of the maintenance connected with a new car will likely be under warranty.

This isn't necessarily a deal breaker, though, if you're considering a used car that is no longer covered by a warranty. To acquire the extra protection you require, you can buy an extended warranty.

Depending on your car and the amount of coverage you choose, you could spend significantly more or less than the average extended warranty price of $1,480.

Not everyone can afford to buy a new car outright, and some may not qualify for financing, so this makes used cars seem more attractive.

Sure, you may not find the exact vehicle you’re looking for, but you get the thrill of the search and that excited feeling of stumbling across a bargain.

If you’re someone who wants all the latest safety features, car models, and tech – perhaps consider a car subscription instead.

With a FINN car subscription, you can get access to all the latest vehicles with a simple monthly payment that covers the cost of the car, as well as insurance, registration, and roadside assistance. 

FINN also allows you to upgrade or change your car more frequently, with typical subscriptions lasting between 6 - 12 months – so you aren’t stuck with the same vehicle for multiple years.