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Choosing between a used and a new car

Choosing between a used and a new car

The pandemic resulted in a surge in demand for cars as people became hesitant to use public transportation. Due to a microprocessor shortage causing supply chain issues for new cars, many people opted for used cars, which saw the prices of used cars increase due to the higher demand. Buying a new car comes with advantages like the warranty you get, usually better or more modern features, and often easier loan options. But it’s also typically the more expensive option compared to a used car.

If you’re choosing between a used or new car, looking at the pros and cons of each will help you with your decision.

New or used cars pros and cons

There are multiple considerations when looking to purchase a new or used car. Each comes with pros and cons. When choosing between a used or a new car, you should weigh up the pros and cons of each of these aspects.

  • Pricing

A new car is more expensive; there aren't many used cars that would be more expensive than a new car unless they’re prestige or classic cars. The difference in the price of a used and new car depends on how old the vehicle is, the make and model, and its condition. Generally, if a used car is in almost “as new” condition, you could save about 20 per cent compared to the price of buying the same car new. To get more information about the difference, you can check online for a new and used car price guide.

  • Choice

If you decide to buy an older car, the options are often limited to the makes and models on the market, which means you have less choice. If you have a particular make or model in mind, you may not find the type of car you want. If you find one that suits your requirements, you may have to spend extra to get all the features you want or miss out on them. When purchasing a new car, your choice is not limited. You can usually find the make, model, and colour you want quite easily just by shopping around. Your preferences on make and model would likely play an important role when making the decision to buy a new or used car.

  • Expertise and experience

Checking the condition of a used car before purchasing it is important to ensure there is no trouble in the future. Although you can refer to checklists, if you’re buying a used car for the first time or aren’t that knowledgeable, you may not know what to expect. On the other hand, when you buy a new car, you don’t need to worry about its condition because it’s brand new and comes with a warranty. So if any issues arise, you’re likely covered.

  • Financing the purchase

Lenders offer auto finance to purchase both new and used cars. However, the terms they offer differ between a used cars loan vs. new car loan and are often determined on a case-to-case basis. Generally, it’s easier to finance a new vehicle via a loan. Used vs. new car loan rates are also different. Lenders often provide a lower rate when financing a new vehicle compared to a used car. If you require finance to make your purchase, you should check the terms and conditions of the loans and the differences when it's a new or used car to decide.

  • Warranty 

Manufacturers and dealers do several checks and verifications like the sticker for fuel consumption for new cars. Used cars went through these checks when they were new, but the most up to date information may not be available. Some owners do keep thorough records, but you can’t confirm if they’re accurate. Moreover, used cars may have hidden problems that are not visible at the time of purchase but may become noticeable later and require additional repair costs. Doing a car history check to find out if there is any outstanding loan on the car is a must-do for any used car purchase. You may also want to see its service history and ask if you can get it professionally checked to make an informed decision.

Most new vehicles come with a warranty that lasts three years or a certain amount of kilometres. A few cars may have a seven-year warranty, which may be longer than the time that you’ll actually own the vehicle. You may even be able to extend the warranty of a new car at the time of purchase. A longer warranty provides peace of mind. If you sell the car before the warranty expires, any balance is transferred to the new owner, which is an added benefit that can help with the sale. Warranty is an important consideration when choosing whether to buy a second-hand car or a new car.

  • Financing the vehicle purchase

Several lenders offer loans to purchase a new or a used car. There is also often the option to finance a new car through the dealership, but make sure to check the details of these loans before signing. One key difference between new vs. used car loans is the maximum age of the car that lenders are willing to fund. The maximum age varies from one lender to another and you can often explore other options like a personal loan to buy your car. However, you can still explore other options like an unsecured car loan or a personal loan to buy a used car older than five years. If you choose a secured car loan, the lender creates a charge on the car and generally offers a better interest rate. This can be an important consideration for you while choosing between a new and a used car.

How does depreciation affect your decision?

An important factor that you shouldn’t overlook is the depreciation of the car. Generally, a new car loses about 30 per cent of the value within the first three years. Some high-end models may depreciate faster, while a few popular models depreciate at a lower rate. If you’re set on getting a new or newish car, consider looking for ex-display or ex-fleet models that are often only a few years old. You can save a significant amount if you’re able to find a newish second-hand vehicle that is reasonably priced.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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