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The Case for Buying a New Car


New or used?

It’s a conundrum as old as cars themselves:

  • Buy new and enjoy the security of new-car reliability and a factory warranty? Or
  • Buy used and save thousands on depreciation?

Now, if I were to poll personal finance bloggers, I’d guess 98% would say always, always, always buy used. Because the numbers don’t lie. Statistically, buying a used car is cheaper. In most cases, the increased cost of maintenance on a used car never exceeds the premium you pay for a new car.

Case in point: According to Edmunds, a new Honda Accord depreciates by 27% in its first year. And Hondas are known for holding their value. A Chevy Malibu depreciates 41% in its first year. That means if you paid $25,000 for a Malibu, just a year later, you could only sell it for $14,756. In five years, a Honda Accord depreciates 55% and a Malibu 68%. So, aside from the marginal increased maintenance cost, if you buy a brand new Chevy Malibu instead of one that’s just a year old, you’re paying $10,250 for that new car smell.

But wait, aren’t I supposed to be making a case for buying a new car?

Yes. Because you get what you pay for.

When you buy a used car, you’re taking on risk. You can check the vehicle history report, inspect the previous owner’s maintenance records, or take the car to your mechanic for an independent opinion. Still, there could be untold repair bills waiting for you around the corner. Actor Rip Torn once said: “I’ve got two old Volvos, two old Subarus, and an old Ford Ranger. If you’ve got an old car, you’ve gotta have at least several old cars, ’cause one’s always gonna be in the garage.”

That’s good advice, because used cars break. Sometimes, right away. Many years ago, I purchased a used car from a friend. I was living in Massachusetts at the time, which requires cars pass an emissions test within seven days of purchase. The car failed and took $900 worth of repairs to pass. Fortunately, I was able to work out an agreement with the seller over a few stiff Vodka Tonics, but I wouldn’t have been so lucky if he weren’t a friend.

Other people I know have purchased cars that ultimately end up being total lemons and require several thousands in repairs annually. Worse, they’re unreliable. The wrong used ride can strand you on a frigid highway en route to a Phish show with a backpack full of pot and an unconscious drifter in the back. After paying the tow, the repair, bail, and your lawyer, a reliable new car will seem like a deal. New cars break, too, but the odds (and the warranties) are better.

Let’s talk numbers.

In most cases, used cars need work: some brake work here, a new muffler there, maybe some new tires. So you spend $500 or $1,000, but you saved several thousand because you didn’t buy new. Unless, of course, you buy a used Saab or any other lemon, in which case you could spend $5,000 in just a couple of years trying to keep the thing on the road.

Advantage new car? Maybe, maybe not. But he longer you keep a car, the more a new car’s premium price gets absorbed into lifelong ownership costs. If you’re paying $1,500 a year in repairs from year one instead of year four, that’s $6,000 saved on maintenance with a new car. Is that enough? Maybe, maybe not.

But here’s why you buy a new car: For the security. The insurance. The risk abatement. Basically, you a buy a new car because you don’t want it to break down. And that’s something you can’t put a price on. That’s value.

Back in my financially ignorant days, I purchased—new—a pretty basic Toyota Tacoma, which I’m still driving today. Although now I see that purchasing any vehicle at the time was a terrible financial decision, I’m not sure that I regret buying new. Could I have gotten a good car for less? Yes. But after years of driving cars that would leave me stranded once every couple of months, it’s nice to have gone five years in a car that hasn’t stranded me a single time. That’s a premium that’s worth paying, but only if you can afford it (which of course, I couldn’t when I bought).

The next time I buy a car, I’ll be able to afford that premium if I choose. Maybe I will, maybe I won’t…but I’ll have a good reason either way.

If you’re shopping for new cars, do it right and get dealer quotes online first…don’t pay more than you have to!

p.s., there are other benefits to buying new:

  • Low interest rates. Got good credit? You can get a car loan for between 0% and 4% with little or nothing down. I don’t advocate financing a car you can’t afford, but at these interest rates, finance a car and invest the cash. See my tips on financing a car the smart way.
  • Time savings. Maintenance aside, you will save time buying new. Buying a new car is easier because you don’t need to locate specific cars and research their histories. Walk into a dealership, negotiate, and drive home. And time is money.
  • Efficiency and safety. In general, every year cars are built more efficient and with more safety features.

Know Before You Go to the Dealership

Find Car Incentives & Rebates at Edmunds.comGet Free Dealer Price Quotes in 5 Minutes
Let the dealers fight for your business; pick your car and find the best price before you leave home.
MyCreditCardFinderGet Financing Online Before You Shop
Easy 3-minute pre-approval. No obligation. Past credit problems OK.
About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. It’s a pet peeve of mine when people say a new car “loses value as soon as you drive it off the lot.” Why would I sell a car as soon as I drive it off the lot? Lots of new things lose value as soon as you use them. New shoes or clothes, furniture and kitchen appliances, for example, all lose value immediately. But they’re going to last you for years so why does it matter?

    • Kat-

      I agree with your logic, but a loss of job or illness doesn’t immediately make somebody regret buying a new pair of shoes or clothes the way a new car can. If you’re looking to unload that car as fast as possible, or trade for something more economical- you will really feel that depreciation.

      I don’t think anybody goes into a car dealership thinking they’re going to be getting rid of the car in the immediate future, but at times it can’t be avoided.

      Just my two cents.

  2. There are certainly pros and cons to new and used cars.

    I drive a used car, but a few years ago, my wife bought a new vehicle from her dad who works at a Chevy-Nissan dealership.

    Honestly – the new car has had far more problems than the used (which is now 10 yrs old).

    Granted – most problems were under warranty. But part of the catch with buying a new car is sometimes the “bugs” aren’t worked out yet.

    Don’t you think you probably PAID for most of what was under that warranty with the higher cost of a brand new car?

    Plus – you still have to deal with the hassle of taking your car in and waiting for it to be repaired.

    I have a friend who bought a brand new Chevy Malibu only to have issue after issue until the engine needed to be completely replaced.

    Also – manufacturers like to go cheap on some parts and tires. You’ll find yourself replacing stuff like that not long after you buy a new car.

    Some things like tires, brake pads, general wear and tear stuff aren’t covered under your warranty.

    If you do have to finance a car – your monthly payment will obviously be much lower if you buy a car that’s 3-5 years old.

    I don’t understand why anyone would want to pay almost as much on a monthly car payment as they would to rent an apartment.

  3. In my experience (with myself and my immediate family), every used car we have purchased has been a lemon. That goes for used cars purchased from dealers and used cars purchased from friends. None have lasted very long without hundreds of dollars in repairs and many break downs.

    Now, I always buy new. The added cost is worth it to me in the value I receive from knowing that (usually) the car will be reliable. I travel a lot for work, and an unexpected breakdown costs me a lot more than just the repair bill, time and frustration.

  4. My previous purchase was a used car. It was great and didn’t develop any major problems until I was just about done with it (6+ years). So I have no qualms buying used at all.

    I just bought a new car 2 weeks ago. I really evaluated what I needed, and ended up down-sizing. That made buying new more affordable. Between trade-in, offers, and down payment, I put down over 45% on the car. That also let me do a 3 year term on my loan. Depreciation be darned, I’m well ahead of it! ;)

    Everything turned out fantastic. Plus, my new car has twice as many features as my old one did. And now I have peace of mind, since I finally have a warranty again!

  5. Your depreciation numbers are ridiculous. Are you comparing MSRP on a new car to street price on a used one?

  6. Buy certified pre owned, you win both ways. Buy a car that just about 3-4 years old. Chances are thats when the leased cars will be coming back in.

  7. I’m a fan of buying a new car and holding it for a long time. I bought a new Corolla in 2006 and plan to keep it for 10 years. It has needed no repairs and always runs.

    • I am the same way. Since I don’t replace cars very often, I prefer to know it’s entire history and get exactly what I want. My last couple new cars were ordered with the options I wanted rather than picking one off the lot

  8. I just bought a brand new Volks Jetta, with the color and options I wanted. I had searched for one that was about 1-2 years old but it was nearly impossible to find. With my credit score, I locked in a 5 year loan for 0%, which means I’m just paying off the car. The best rate I could get on a 5 year loan on a preowned or used car was 4.25% so I’d rather pay more off the car and get that much more car, than buy used and still end up paying the same amount in interest after all is said and done. What’s most important to me is the security and KNOWING i’m not going to break down or have to dig into my e-fund for a major car repair cost.

  9. If you can get a new car for just a few hundred dollars over the invoice price a new car can be a better value some of the time. I figure the value of owning a car every year and with a good initial price, you can cover that cost. That being said, most of the time I think it is your best interest to go 2-3 years old on a car. The new route has only been a better deal for me, once.

  10. TwinsMama says:

    I have to opt for New. I’m a Mom and have found the peace of mind worth it. I’ve purchased used and ALWAYS regretted it. The key is to buy new but not the current year model.

    When I’ve purchased new I’ve always bought a new car from the previous year. By that time I know what the “kinks” are and usually when you buy it this way, any recall items (hopefully there are none) are fixed at no cost to you, before you drive it off the lot.

    Also, I make sure to get a payment that will allow me to be finished paying it off within 2 – 3 years. That said, I normally get a low payment and then budget to pay double the note. Yes, I could invest those dollars but I’d rather be out of debt. Doing this I’ve never owned a new car (during the repayment period) that had less value than I owed.

    Also, keeping my car until it literally dies (costs more to repair than to buy another one), helps us too!

  11. I think something that has been missed is the misc. additional costs of a new car versus a used car. How about the fact that registration is much more expensive for newer cars? How about the fact that insurance is more expensive for newer cars? I like the idea mentioned in a previous post about buying certified used cars. They still have a warranty, and you don’t lose all the depreciation. It just doesn’t make financial sense to buy a brand new car. It’s best to buy a car that is around 3 years old with a portion of the factory warranty (must be transferable) remaining. Then, you eliminate the risk of buying a used car and having something catastrophic immediately occur, like blowing an engine, and having to fork out the money. Learn basic car mechanics, and you can inspect cars yourself before you buy, and be able to find a reliable vehicle. You can also do basic repairs youself and save alot of money.

  12. This article lacks logical thinking to the point of being intellectually dishonest. The author suggests that buying a used car leads to repair costs while a new car does not. If you are going to assume the 1-year old used car needs repairs in years 2, 3, and 4, why is the new car any different? Sure, you get to skate by in year 1 with no repairs (hypothetically) to the new car, but once that first year passes the repair costs (years 2, 3, and 4) are the same in both scenarios. So this ridiculous notion of $1500 per year cost of owning a used car is somehow negated by buying a new car is just goofy. Please don’t post a story just to post a story! Give us realistic and useful information, not half-hearted space filler.

  13. I understand why people buy new (and want to buy new), but it isn’t cheaper even in the long run.

    As many have mentioned, the only good reason to buy new is the premium of knowing 100% (if you never let your spouse/kids drive) of the vehicle’s history. This is not to say that it isn’t a valid choice to buy new, I’m just pointing out that it isn’t financially beneficial to do so. We are obviously talking about averages here, not certainties. For the mom who wants to be extra sure about the safety in her car or the person who can’t handle not having the latest stereo in their car it may be worth it. Its up to them. But they ARE paying a premium.

    While it is true that newer vehicles typically require fewer repairs they do still require repairs occasionally. And although I’m sorry for the bad luck some posters above have had with used cars, anecdotes do not equal data. Not all used cars are lemons and not all new cars last years without requisite repairs. It is true though that a used car will typically cost you more in repairs per year than a new one.

    As a previous poster mentioned, however, new cars tend to have much higher registration and insurance costs. This cuts into the savings on repairs.

    And while you typically can get lower rates on a loan for a new car, who says you have to get a loan for a used one? The last car I bought was a used 1999 Camry. I bought it 4 years ago and I paid for it in cash. No payments to worry about. I admit that it requires a bit more pre-planning (I saved for a year and a half), but aren’t we talking about being smart financially on this site?

    I have to disagree that a new car is going to be cheaper than a used one (make & model being equal). Personally, I’ll go for a used car every time. Unless I win the Lotto :)

  14. Lets thinkg about this, For everyone who buys a used car. Someone has to buy it new first.

  15. “For everyone who buys a used car. Someone has to buy it new first.”

    And let me just personally thank all of you new car buyers for eating the first 30-40% of the costs of owning a car!

  16. Glenn Kalaw says:

    I had my first car when i was 18 and i bought it when it was brand new. It was a honda accord and was very reliable. I was lucky this vehicle lasted me for 10 years before i finally sold after putting 290k mileage. Never had major problems for that last 10 years because i took care of it and always doing routine maintenance etc. Now i owned two old 10 years old car BMW 528i and Acura CL type S that i bought only less than 5K each. I gotta have two car just incase one is out of service. I graduated and work as an aircraft mechanic which helped me save tons of money fixing my own vehicles because realisticlly when your 18 or young you would not know how to fix a car so you go for buying a new car. The downside on that is 5 years average to pay plus and higher premium insuarance is required. Thats alot of money that your not saving. I only recommend buying used car for those guys who can fix there cars. But ofcourse not all are mechanically inclined and if thats the case buying new car is ideal. In the other hand used car will save you alot of money but keep in mind the risk of maintenance as compare buying new car. “The moment your drive your car out of the dealership the value of that car depreciated already” true fact not to scare you.

  17. The Oil Barron In Training says:

    Something that I think has been missed in this discussion is what type of car you are buying. There are some cars that are worth buying new. For instance BMW’s are not a bad buy new. The reason being that the 5 year 50k service warranty covers absolutely everything, including oil changes and if you are having work done, they give you a loaner car. Their certified pre-own is an even better deal. The warranty lasts 4 years or 100k. It doesn’t cover regular maintenance like oil, brake pads, or tires, but it does cover all major components. I bought a used 2008 328i for $20k last year. It has had only 1 problem and is in the shop as we speak, but it is all covered under warranty and the loaner car is actually an upgrade from mine.

    The key to buying used cars is to buy gently used cars. If you buy a car with 70k miles on it, you are going to have problems fairly soon. However, you can find used cars with less than 20k miles, usually leased cars (maintenance taken care of by the dealer). They are not super cheap compared to a 70k mile car, but they have pretty much seen most of the new car depreciation.

    Also what you are buying makes a difference. If you are buying a used higher end car like a Mercedes or BMW, the owners usually tend to take care of them. However if you are buying an economy car like civic, they tend to not be taken care of as well. It is likely that the person was young and broke and may have put off maintenance due to being broke.

    The key is to look at all variables involved. If you change cars every 2 years, then buy used. If you plan on driving the car to death, then buy new or used with less than 20k miles so that it will last.

  18. I bought my truck when it was only one year old, and it only had 12k miles on it. It was (and more or less still is) in perfect, brand new condition, but I saved thousands of dollars because it was used. I bought what was essentially a brand new truck for over $8,000 LESS than what a new one would’ve cost. One year and 12k miles is a negligible difference in age over a brand new vehicle, and there’s no reason it can’t last just as long or longer than a brand new one.

    I plan on driving this truck (and my other car) pretty much forever, until they’re ready for the junkyard. Having two vehicles means one can be in the garage getting fixed and I can still drive to work the next day (This is not the only reason I have two cars; however it is a plus). I can fix my cars myself, which saves me a TON of money by not having to pay someone else to do it, AND it’s my favorite hobby, so I don’t consider it “time I could be spending doing something else,” because there isn’t anything else I’d rather be doing. In addition to my regular full-time job, I have a part-time job on the weekends working at an auto parts store, which not only puts some extra cash in my pocket, but gives me a substantial discount on auto parts, which saves me even more money.