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New vs. Used: Which Car Is Right for You?

A new car may be out of your budget, but buying a used vehicle could mean expensive repairs. Here’s what you need to know to spend your money wisely.

You’re ready to buy a car, but how do you decide whether to buy new or used? There are good reasons for both, but the essential trade-off is between cost and peace of mind. A used car can be cheaper, but a new car may need fewer repairs and is covered by warranty.

Here’s what you should consider as you figure out what’s right for you.

How will the car be used?

For example, do you need an all-purpose family vehicle? For reasons of safety and economy, and to avoid the risk of breakdown or the cost of repairs in a family car, you might opt for a new vehicle that meets the latest emission and fuel efficiency standards and carries a lengthy factory warranty.

If you need a car mainly for your commute to work, however, that leads to different considerations. Do you have a long-distance commute and want a new car that may outlast your car loan? Or a short commute in stop-and-go city traffic, for which a cheaper, used car—one that you wouldn’t sweat a ding over—might fit the bill?

Or are you looking for something special or quirky? You might want a used car like a Crown Victoria, with its smooth suspension and powerful V8 motor. Or perhaps you’ll look for that Beetle with a flower vase. They literally don’t make cars like these anymore: Ford discontinued the Crown Vic in 2011, and VW eliminated the flower vase in the redesigned 2012 Beetle.

How much can you spend?

The standard rule of thumb is that your car payment should be no more than 20% of your take-home pay. And don’t ignore the down payment and insurance premiums when drawing up your budget. Edmunds.com suggests you aim for a 20% down payment for a new car, and 10% for used, so you’re not immediately underwater when you drive off the lot.

Not sure what you can afford? Use these calculators to evaluate your situation.

Weigh your options

Once you’ve answered the questions of use and budget, you can get down to the nitty-gritty of actually choosing a car. One final note: Before you even consider buying a used car, make sure you have a reliable mechanic who can inspect the car before purchase and who can maintain and repair it as needed.

With that caveat, here is a quick checklist of pros and cons when shopping for new and used vehicles.

PRICE

New: Car dealers often will offer steep discounts and have factory rebates available on a new car, drastically reducing the sticker price, especially toward the end of a model year. Plus, financing may be on more favorable terms.

Used: Used cars are cheaper because 30% to 40% of a car’s value is lost in the first two or three years. You can hardly buy a new car under $15,000, but you have a wide selection of used cars at that price, with features that would cost you a bundle in a new car. Use this calculator to compare the various price factors in new vs. used car purchases.

WARRANTY

New: A factory warranty covering major operating parts is a huge plus in a new car, eliminating most of the worry about unexpected expense. Especially as cars are loaded up with more electronics, this guarantee of maintenance and repair is very appealing.

Used: The factory warranty still may be available on a used car, and you save that initial hit on depreciation. This is especially true of certified pre-owned (CPO) vehicles offered by dealers. But be careful: These often have huge markups. You also have the option to purchase an independent extended warranty.

CHOICE

New: Theoretically, you can order anything you like in a new car. But practically speaking, the incentives to buy a car off the lot can be so enticing that it’s a difficult choice to spend more for just the right color.

Used: Finding the right used car may require some patience, although online shopping has made it a lot easier. Let yourself be surprised: You may find you like something completely different from what you were originally looking for.

Start your online search, for either a new or used car, and take advantage of your NEA member discount.

TECHNOLOGY

New: Obviously, new cars will have more up-to-date technology. Some of these features are directly related to safety, such as tire pressure monitoring, stability control systems, side-impact airbags, adaptive cruise control and brake assist. Others, such as multimedia interface and built-in GPS, are enhancements that make the driving experience easier and more pleasant.

Used: Many of these features also will be available in late-model used cars, depending on the make.

SALES PERKS

New: Car makers are throwing in more perks for new cars, such as free maintenance for a certain period or roadside assistance.

Used: For CPO used cars, an extended warranty may be available. With other used cars, however, you’re on your own, although roadside assistance often is available from your insurer or automobile club.

RESIDUAL VALUE

New: A new car loses much of its value the moment you drive it off the lot. After the initial depreciation hit, cars lose value at different rates, and this should be factored into the overall cost equation.

Used: The rate of depreciation in a used car depends not only on the durability and reputation of the car but on how aggressively the manufacturer is selling new cars. If the manufacturer is giving a steep discount to new cars, this will depress the residual value of older models.

‘IN-BETWEEN’ CHOICES

There are two categories of used cars that mitigate some of the disadvantages, although they also diminish some of the advantages. Certified pre-owned vehicles generally are late-model cars with low mileage and no history of damage. They are subjected to a rigorous inspection and often come with an extended warranty and some new-car perks such as special financing and roadside assistance. However, all of this comes with a price, meaning these cars will be more expensive than a typical used car.

The other category is the demonstration car—one that has been used by the dealer for showroom purposes but has no previous owner. These “nearly new” cars are cheaper than the completely new but offer virtually the same advantages.

READY TO BUY?

The NEA Auto Buying Program offers discounts to NEA members who are in the market to buy a new or used vehicle.

Learn more about purchasing a vehicle in our Auto Buying Research Center.

This article was published in NEAchieve!, our monthly e-newsletter. Sign up to receive helpful tips and information delivered to your email inbox.

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