Should I buy a new or used car? It’s an age old quandary. The answer depends largely on you, your credit, your risk tolerance, and your priorities.
Who Should Buy New?
Are you the type of person who is willing to risk being upside-down on their loan for a few years in order to drive a new car? Are you willing to drive your vehicle until it is 100% paid off? Do you feel that a new car is proof against extensive repair bills? Do you have a credit score that will allow you to get a loan for a new car at a reasonable rate? Can you afford a down payment amounting to 20% of the vehicle’s purchase price? If can comfortably answer yes to all of these questions, then a new car is right for you.
Who Should Buy Used?
Used cars are going to be less expensive, that goes without saying. That means that you will usually have a fairly manageable monthly payment and a lower insurance bill. Also, the down payments required for used cars are typically lower, often closer to 10% rather than 20%. You will have a few more worries than with a new car, however, mainly in the form of repair bills, especially if the car is out of warranty. Also, interest rates for pre-owned vehicles are always a few percentage points higher. On the other hand, lenders will only offer shorter loan terms on used cars, so although you may be upside-down on your loan, it will be for a shorter period of time than with a new car. Overall, a used vehicle will put less strain on your finances.
Is There a Way to Compromise?
A great middle ground in the debate is the certified pre-owned vehicle (CPO). Most major manufacturers now have such a program. These CPO cars must be thoroughly inspected and repaired before they can be certified, making them less apt to breakdown than non-certified pre-owned cars. Many of them have a portion of the factory warranty remaining or are eligible for an extended warranty. They must also meet low mileage requirements. This means that you will be buying a car that is warrantied, has lower mileage, and costs quite a bit less than a new vehicle. Basically, you get the best of both worlds, and to boot, that initial 20% drop in value has already passed. So, the true answer may lie in a compromise.