Is it Better to Buy a New Car or a Used Car?

If you are in the market for another car, you are probably wondering whether it is better financially to buy a new car or a used car. There are a lot of pros and cons to each and it really comes down to the choice that is best for your situation.

If you are looking to finance the car, the rates are much better for new cars. In addition, you will get the latest style, technology and safety features with a new car. Currently, you will get special factory incentives, rebates, discounts and free extra features on a new vehicle. New car warranties cover a lot more than they did just a few years ago and most new cars come with free roadside assistance during the warranty period. The short term maintenance costs are much lower for new cars as well. If you do end up buying a car that develops significant problems, there are lemon laws in most states that will protect you. 

One big negative associated with buying a new car is that the sales tax is usually calculated before the incentives and rebates are tallied. Another big problem with buying a new car is that it depreciates as soon as you drive it off the lot. Some car buying guides suggest that new cars depreciate between 20% and 40% over the first 2 to 3 years.

One advantage of buying a used car is that you avoid that huge depreciation. If you purchase a late model used car, you will also get the remainder of the factory warranty. Since the purchase price is less on a used car, you will pay less sales tax and your car insurance will be less. These savings will be offset by the higher interest rate you will have to pay for the loan on the used vehicle.

Perhaps the biggest disadvantage of buying a used car is that you may be buying someone else’s problem. In most states, used cars are not covered under the lemon laws. You are also subject to getting scammed by an unscrupulous dealer or person trying to sell you a previously salvaged, wrecked or flooded vehicle. You can avoid this by getting a Carfax report on the car and having it inspected by a qualified mechanic.

Of course another issue with buying a used car is that it already has the wear and tear associated with its age and mileage. For this reason, your maintenance costs will be higher on a used car. Also, you will not know how well the car was maintained by its previous owner. Again, you should have the car inspected. The mechanic will be able to give you a lot of information about the condition of the car. Those things will include the condition of the brakes, tires, hoses, belts etc. You should never purchase a used car from a private party without having it inspected first.

There are a lot of things to consider when making the decision between buying a new car or an older one. It really comes down to your financial situation and your comfort level.

Why are Used Car Prices so High?

If you are in the market for a good used car, you are probably experiencing something that is usually only associated with new cars, namely Sticker Shock. So, what is causing the price of used cars to be so high? There are many reasons for it, but they all basically boil down to the law of supply and demand. When the supply is low or the demand is high, the price will go up. Currently, the supply for used cars is very and the demand is very high, so both are happening. The demand for used cars in up because many people who would normally buy a new car are now in the market for a used car. Concerns about our economy are steering people away from large ticket items, like a new car.

The supply of used cars in the market has dwindled for many reasons. One of those reasons is the government’s recent Cash for Clunkers program. This was the program that was supposed to stimulate new car sales and thus our economy. Under that program, people were given vouchers of up to $4500 to use towards the purchase of a new more energy efficient car when they traded in their used less fuel efficient car that ran. About 700,000 cars were traded in under the Cash for Clunkers program. Since those vehicles were ones that ran, they would normally have gone straight into the used car market. Instead, under the rules of the program all of the Cash for Clunkers cars were destroyed. The result was a 700,000 drain on the used car market.

Another reason for the shrinkage in the number of available used cars is that many motorists are choosing to keep their used cars rather than trading them in for a new or newer one.  In addition, there is an extreme lack of cars entering the market from rental car agencies and companies that provide fleet cars to their employees. Those institutions normally trade their vehicles in for new ones every year or two. At this time, those companies are holding onto those vehicles longer due to our lackluster economy.

When the economy begins to sufficiently improve the sale of new cars will finally increase. When that happens, the supply of used cars will increase correspondently and the price of those used cars will start to come down. Until that time comes, the price of used cars will remain high.