When it comes to purchasing a vehicle, there are many things you need to consider.  There's the color of the car, the body style, and the options that you want to name just a few.  Once you've figured out those details, it comes down to whether you want to buy a brand new vehicle or a used one.  There is no single right answer to fit everyone; it all depends on your personal circumstances and what matters to you.  So, here are some things to consider when determining whether buying new or used is right for you:

Initial cost - The purchase price of a new car is typically higher, both because they are new (and new things usually cost more than comparable older options) and because you are likely buying the vehicle from a dealership that must make a profit to pay their employees and keep their business afloat.  Used cars tend to cost less because they have accumulated mileage and wear and tear due to prior use and because they are often sold by the current owner who probably does not have employees to pay or a company to keep running with the proceeds of this single car sale.

Ongoing costs - All vehicles have ongoing costs such as gas, registration costs, insurance premiums and repairs that must be done.

  • Gas - Depending on the vehicle(s) you're looking at, gas costs could be similar when looking at new and used. . . or very different.  More and more new cars are focusing on getting the most bang for you buck at the gas pump.
  • Registration fees - The newer the vehicle, the higher the registration fees are likely to be.
  • Insurance premiums - Depending on the level of coverage you opt for (or are required to have by your lender), insurance on new cars is likely to be more expensive than that of older cars.  As a vehicle gets older, it depreciates (is worth less) and, if the vehicle were to be damaged, your insurance must cover only what the vehicle is worth.  If the vehicle is worth less, the insurer has to pay less, thus less charge to you in the premiums you pay.
  • Repairs - It is much more likely that a used car will require repairs sooner than a new car will.  The used vehicle has been driven, perhaps to its limits, and repairs may be necessary to keep it running at its optimal level.  These repairs can range from minimal in cost to substantial.

Reliability - New cars tend to be more reliable than used cars.  Having been driven before, usually by someone whose driving habits you are unaware of, means that there has been wear and tear on the vehicle, usually to a normal extent, although sometimes to the extreme.  Also, in the event that there are issues, new cars are typically covered by some type of warranty.  This means that if anything goes wrong with the vehicle - other than regular wear and tear - within a certain amount of time (often 3 or 5 years), the manufacturer may fix it at no cost to the owner.  Used cars may or may not still be covered by such a warranty.

Ability to customize - If there are certain features, options and/or colors you want in your vehicle, choosing a new car will make it easier to ensure you get exactly what you want.  Car dealerships have an ever-revolving inventory of cars and can, therefore, probably find you what you want.  On the other hand, finding that one person who currently has (and wants to sell) a used version of exactly what you're looking for can require a lot of research, possible travel and limit your ability to negotiate the price.

Vehicle value - If retaining the value of your vehicle is important to you, used cars are almost always the best choice.  If you were to buy a new car off of a dealership lot and then try to sell it the next day, you would likely find that you could not sell it for what you paid for it.  This is an immediate example of depreciation.  Once you take responsibility for a new car and drive it off the dealership lot, it automatically is worth less than you paid for it (usually about 20% less) because the costs of transporting the vehicle to the dealership, paying the salesperson and keeping the dealership in business are built into the price you paid for the car.  When you buy a used vehicle, there are less (or none) of these costs built into the price.  After the initial brand new purchase, the car will continue to depreciate over the next couple of years by about 15% each year until the vehicle reaches 5 years old.  At this point, depreciation slows significantly and often depends on the make, model, mileage and other factors regarding the car and what is in demand within the car market.

In the end, the likelihood is that your purchase of a vehicle is a decision you'll be living with for the next several years.  Make sure that the costs fit your budget and that you're happy with what you drive away in.

This information has been provided by Financial Wisdom Marketing Services, Inc. and is for educational purposes only.  Content from Financial Wisdom and/or Redwood Credit Union is not, in any way, intended to provide legal, tax, or financial advice.