Buying a vehicle is a big investment. To get the best deal, most people will tell you to buy a used car because new cars depreciate quickly. And in most situations, buying a used car is the way to go. But sometimes the benefits of buying a new vehicle outweigh the savings of buying a used car.
Benefits of Buying a New Car
Buying a new car is not for everyone. But there are many reasons when it makes sense to buy a new car versus rolling the dice on an older used car.
Full warranty: New cars come equipped with a full warranty, so you know your car will be guaranteed against certain faults for a set period of time. This is a great benefit because the warranty lowers the chance of high maintenance bills during the first couple years of ownership. Some warranties cover more than others, so be sure to understand the exact warranty details of the car you purchase.
Better finance rates: Banks will almost always give a better loan rate for a new car vs. a used car. Why? Because new cars are typically worth more and offer better collateral. They are also less likely to break down. If a car is no longer drivable, some people just decide to stop making payments. The difference in interest rates for a used car can be as much as a full point or two higher, and sometimes more.
Ownership and maintenance history: When you buy a new car, you know everything that has happened to it – which until you own it, is pretty much nothing. Once you take ownership, you know how the car was treated, if it was driven roughly, the accident history, if it has been maintained, etc. When you buy a used car, you have to take the word of a third party for the car’s history – either the previous owner, or a company such as CarFax.
But even a report from a company such as CarFax isn’t always reliable for accident history (if the accident wasn’t reported to an insurance company, chances are CarFax doesn’t know about it). Their reports also do not inform buyers whether routine maintenance was performed on a regular schedule, or the previous driver’s habits.
Another thing to consider – many used cars on the car lots are former rental cars. Unfortunately, many people who rent cars treat them roughly. Would you want to buy a former rental car that has seen heavy use by a large number of people who will never see the car again? Probably not.
The freedom of choice: When you buy new, you select the make, model, color, trim, accessories, etc. If the dealer doesn’t have it in stock, you have the option of going to another dealer, or having the dealer order the car for you. When you buy a used car, you are left with whatever is available. Sometimes, your dream car is available with your exact specifications. Other times, it is nowhere to be found.
Modern safety features. Many new cars feature excellent safety features not found on older models. Saving money is great, but not at the cost of safety. Some safety features can also help you save money on your auto insurance.
You may have more leverage, depending on market conditions. You can get a lot of information about new car prices online, making it easier to compare pricing between dealerships. Pricing used cars is not always as easy, because there are often more variables, such as mileage, condition, accessories, color, and other factors. These tips can help you on your next car purchase.
I Bought a New Car, and Why it Was a Good Idea For Me (at the time)
Most people recommend not to buy a new car because they depreciate so quickly. And we all know you shouldn’t put a lot of money into a depreciating asset – especially one that most people won’t keep long enough to pay off. Well, I went against that advice, and bought a new car in November of 2005. There were several reasons I bought a new car, but I will tell the story and the reasons will unfold.
The first reason was – I needed a different vehicle. The truck I owned at the time was a manual transmission, and I was scheduled to have back to back knee surgeries (one on each knee). I lived alone at the time, so I needed a reliable means of transportation that wouldn’t cause me pain to drive. I needed a car with an automatic transmission. Oh, and I lived in a location where having a car is a necessity due to the complete absence of public transportation.
Lack of local options. I lived in a fairly small, military town in west TX. There are several recurring themes in military towns – one of which is the propensity for auto dealerships to charge much more than they would in other towns. The other thing I had going against me, was small town dealerships often charge more than dealerships in large cities. It only made sense for me to go to a larger city to buy my car.
So I traveled. Thankfully, my parents lived in Houston, a large city with plenty of dealerships fighting for sales. One weekend I made the 6.5 hour drive to visit them and shop for another car. I had done plenty of research and determined I wanted a late model used car, and I had several models in mind. But there was a problem. A big problem.
A natural disaster. November 2005 was shortly after Hurricane Katrina, and almost all of the used cars in the Houston region were bought up by hurricane refugees who relocated to Houston after the gulf region was devastated. The remaining used cars were almost as expensive as new cars, and damaged cars were just starting to “flood” the market. There was a substantial amount of automobile fraud around this time period. Based on the price I would have had to spend to buy a used car, and the added risk of buying damaged goods, it was actually better for me to buy a new car.
I did my research, and narrowed down my choices to a few selections, then test drove them. Then I compared new car prices online to make sure I knew what the market was for that make and model. In the end, I purchased a brand new car that was relatively inexpensive, economical, sporty, and is fun to drive (it has a Tiptronic style automatic transmission with a manual shifter). I also got a full warranty, and a guarantee that the car had not been subjected to the ravages of flood waters. In that post-Katrina environment, that was a very big deal.
I made a fair offer. I will write a more detailed article about this later, but basically, I went into the dealership and told them the car I wanted, how much I was willing to pay based on my research, and what I wanted for my trade-in. The offer was fair and they accepted it with minimal back and forth. You can try to squeeze every dime out of the dealership, but at the end of the day, they won’t make the sale at a loss unless they absolutely need to move the inventory.
For my situation at the time, buying new was the best choice for me. If I were in the same situation again, I would make the same decision. Now though, there is no premium on used cars and there aren’t as many flood damaged cars on the market, so my decision would probably be different. But I do not regret my decision. I have had this car for 2 years now, and I expect that I will have it for quite a few more.
Update: Personal Experience with the Car I Bought New
The new car I bought, mentioned above, was 2006 Mazda 3. I bought it new, based on the situation described. It was the right decision at the time, based on my specific situation. I drove the car for almost 12 years before I traded it in for a Certified Preowned Honda Accord. The Mazda 3 was still in great condition, and had low mileage for its age. However, I wanted a larger vehicle for my growing children, and I wanted a car with a more powerful engine because I frequently take long drives on the highway.
The Honda Accord was a V6, so it had plenty of power and was large enough for my growing children. The Honda was 3 years old, and I saved a substantial amount off the sticker price. Like Mazdas, Hondas have a great track record, and I should be able to drive this car until it is 12 years old (or longer).
Should You Buy New, Or Used?
Is a new car in your future? Some people will say “never buy a new car,” because they depreciate too fast, and you shouldn’t put that much money into a depreciating asset. But as you just read, sometimes, buying new is not a bad idea.