This is part of a seven-post series discussing our journey to buy a new car. Scroll to the bottom of this post to explore the entire series.
Today’s entry is a guest post from Jason at My Money Minute. Jason is an attorney from the great State of Texas, where he lives with his beautiful wife and 3 dogs. Jason’s blog is all about “Personal finance and all that implies…in minutes a day.” He writes about how all aspects of our lives–family, spiritual, career, politics–intertwine with and reflect our financial behaviors.
In today’s guest post, Jason tackles the basic question at the heart of every car purchase and an age-old personal finance debate–New vs. Used. I’m excited to hear your comments!
The Philosophical Divide
In our world, there are the few great issues of our time that are so polarizing, you end up on one side or the other based on a world viewpoint and lifestyle philosophy. Major issues such as Republican vs. Democrat, dog people vs. cat people, and Leno vs. Letterman. 😀
Such is the dichotomy of buying a car: Some will only buy a used car, while others refuse to buy anything but a brand new car off the lot. If you can forgive my split-personality, let’s take a look at what both sides have to say on the major issues.
Why You Should Buy A New Car
1. Sticker Shock
For the automobile industry, the last few years have been rough to say the least. The economy went south, and sales declined massively, while at the same time, the cost of new cars had already skyrocketed. As we weather this recession, deals have popped up left and right. For instance, just before the new year, GM offered massive discounts and incentives to buy up the remaining Saturn and Pontiac vehicles available prior to closing their product lines. In the months before that, the government stepped in and offered the “Cash for Clunkers” program that cut prices on new vehicles for those who qualified for the rebates.
Additionally, there’s a shift from big SUVs to smaller, more economical vehicles. Light SUVs and small cars cost less than the gas guzzlers. Right now, you can get plenty of brand new cars, including this Hyundai, for under $20,000. When you can get a brand new car under $20,000, why buy used?
In an ideal world, everyone would buy their cars with cash. More than likely, however, you will be financing your car. In an effort to entice customers, numerous dealers are offering financing at rates that used car financing can’t touch. According to U.S. News & World Report, 0% financing is being offered by all the major American automakers, along with Toyota & Mazda. Other car companies are offering similarly low rates.
To many out there, safety is the most important issue when buying a car. When you buy a new car, you have all the technologically advanced safety features that weren’t available on older models.
4. Less Risk & Repairs
With a new car, you have less risk of major repairs. When you buy a used vehicle, outside of a generic CARFAX report, you have no idea who has driven your car, or whether they took care of your vehicle. The risk of finding a lemon is obviously higher with a used car, and a risk you don’t need to take given the current market.
Last year, Hyundai offered it’s “Hyundai Assurance” program. Its now-famous warranty states that if you purchase or lease a qualified Hyundai and lose your job within the next year, you can turn the vehicle back in to the company without worry of owing negative equity. Just like with 0% financing, dealers are able to offer better deals on warranties than when you buy used. Even if it isn’t as drastic as the Hyundai Assurance program, almost all new vehicles offer a 10 year/100,000 mile warranty.
6. Driving It ‘Till It Dies
If I plan on driving my car for the foreseeable future, rather than trading up in 2 years, the relative difference in price between new and used is not much. If I plan on driving it for 10 years, I’d rather have a new car that was “all mine”. It’s worth the extra money over the long haul to have the peace of mind in knowing your car history.
The Rebuttal: Why You Should Buy Used
1. Sticker Shock, Indeed!
No matter how you slice it, a new car costs far more than the same model just a few years old. For example, take a Nissan Maxima. According to Kelly Blue Book, a brand new 2010 Maxima runs about $29,000. Similar reports show a two year-old, 2008 Maxima with 30,000 miles on it, will set you back around $21,000–and that’s if you bought from the dealer! At best, there’s an $8,000 difference in price. Also, Cash For Clunkers and the GM closeout deals on Saturn and Pontiac have ended, and there’s no sign of those deals coming back soon.
Additionally, the average cost of a new car continues to rise. According to the FTC, the average cost of a new car now tops $28,400, and the average monthly car payment is well over $450! It’s simply more frugal to buy a used car.
The numbers don’t lie – a local bank quotes 4.99% auto loans. Even a great rate like that pales in comparison to 0%. But like I said, the numbers don’t lie. Take a look at the Maxima example from above.
- 2010 Maxima priced at $31,000 with 0% financing = $31,000.
- 2008 Maxima costing $21,000, with a $2,000 down payment, financed at 4.99% over 60 months = a total cost of $23,500.
That’s still a difference of $7,500, just to have a car that’s two years newer!
At this point in technology, the actual safety difference is practically nothing between vehicles that are two years apart. Most vehicles still have the same body style! The differences, if any, are creature comforts, not safety-related. You may have a better drop-down DVD player, but both new & used will have airbags.
4. Risk & Repairs
As a numbers game, it IS true that any used car would be more likely to have repair issues than a brand new car would. You don’t always know who owned your car before you, and you don’t know how they treated it. My rebuttal here comes from Fiscal Fizzle’s previous post in this series, titled “Would You Buy A Rental Car?”. In the comments of the post, a very relevant question is brought up – are rental cars actually driven that much harder than other cars? The point being, cars are durable, and it’s still very unlikely to end up with a lemon.
It’s true that new vehicles typically come with 10 year/100,000 mile warranties, but here’s the thing — they are transferable! If you buy a used car with 30,000 miles, you still have 70,000 miles of warranty! Not to mention, you would know if any warranty work was done on that initial 30,000 miles of driving.
6. Driving It ‘Till It Dies
This is a common excuse reason to buy brand new car. Even if you do drive your car for a decade, does that justify the extra $7,500? Given the risk between new & a 2-year old used vehicle is relatively minuscule, it just doesn’t make sense. Take that money and invest it, or at least use it to help pay for your next vehicle!
Taking the arguments from each side into account, I can’t justify buying new over used when comparing between the same model. The only way, for me, to justify buying new is when you base your decision on a budget limit. That is, you would rather buy a brand new Hyundai Sonata over a 2-year old Nissan Maxima, which both sell for around $20,000. Even in this case though, why not buy a used Hyundai Sonata and save even more money?
I tend to side with my split personality that favors used cars. What about you – do you buy new or used cars? Why? What are other factors not discussed?
Photo by emilio labrador
This is part of a seven-post series on our new car journey. Below are links to posts that have already been published as part of this series: