While new cars depreciate quickly, buying a new car may be in your best interest. Here's how to decide whether to go new or used.

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.

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About the author

Chris Muller picture
Total Articles: 231
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. You can connect with Chris on Twitter.