Buying a New vs. Used Car: Which is Right for You?
Buying a brand new vehicle might give you an ego boost but it will also put a big dent in your pocket. What few people realize is that the depreciation of a new car in the first 3 years is roughly $15,000 on average. In fact, a car can lose as much as 20% of its value as soon as you drive it off the lot. So before you put your down payment on a brand new car, read this first to find out whether buying used might be the better option.
How Depreciation Impacts the Value
To figure out if it’s more affordable to buy new vs. used, you need to first understand how depreciation works. Depreciation is the difference between the car’s value when you buy it vs. when you sell it. The total amount will vary between makes and models, but in most cases, the value will decline between 15-30% in the first year and then up to 60% by the fifth year. What can this tell you? That new cars depreciate the fastest. So if you plan to sell the vehicle in the next five years, you’ll lose a significant amount of the car’s value to depreciation.
What About Used Cars?
There’s a little tip that most car dealers won’t tell you – you can save a ton of money by simply buying a used vehicle that is three years old. This is the “sweet spot” when it comes to depreciation. Since you’re buying it after it’s already depreciated, by the time you sell it, the depreciation amount will also have levelled off.
What About Certified Pre-Owned Vehicles?
If you buy a certified pre-owned vehicle that’s a few years old, you’ll get a well-kept car with extended factory warranties that has already had its biggest depreciation hit. Many certified pre-owned programs also offer better interest rates than regular used cars. This can help you avoid sky high interest rates when buying used.
What About Interest Rates?
Speaking of interest rates, most people expect that new cars come with higher interest rates than used, but that’s rarely the case. As mentioned above, used cars tend to have high interest rates. This is because manufacturers want people to buy their new vehicle inventory, so they offer low interest deals to move them off the lot. But it’s rare that the difference in interest rate will offset the depreciation hit, which means that a 3-year used vehicle is still going to be a better deal, especially if it’s a certified pre-owned model.
What About Maintenance and Repair Costs?
Mileage and wear and tear will also impact the value, adding even more to the depreciation amount. While it’s true that new cars will save you money in repair and maintenance costs over used vehicles, if the used vehicle is under five years old, the difference is minuscule as most components will be still covered under factory warranty.
What About the Insurance Rates?
When it comes to insurance, the rate is often based on the age of the vehicle and its total value. This means that used cars will often cost less because they are older and less expensive to purchase. That is, however, only if you are comparing similar makes and models. Clearly a used luxury sports vehicle will have higher insurance costs than a new 4-door family sedan.
Not sure whether buying new or used is best for you? Come visit us at Seaway GM today and we’ll help you crunch the numbers. Then once you’ve decided which options best suit your budget and lifestyle, we’ll help put you in the perfect vehicle. Our lot offers both the newest Chevrolet and GMC vehicles, as well as a number of certified pre-owned used vehicles in excellent condition. Make your way to our Cornwall location today to take a look at all the available options we have in store for you.