What are the pros and cons of buying a used car?

What are the pros and cons of buying a used car?

Whether you’re an eager P-plater or your growing family needs a vehicle upgrade, buying a car is an exciting time. 

But like with any big purchase, you’ll need to answer some key questions before you go shopping.

Before you sign on the dotted line at the car dealership, make sure you’ve weighed up the pros and cons of buying new or used. 

Pros of used cars: 

  1. They’re cheaper 
    Shiny, brand new cars usually come with a big price tag. If saving money is a factor in your decision making, you can save thousands on a used car. This is by far the main benefit of buying used. 
  2. Can transfer the original warranty 
    If you’re looking at cars ten years or older, this will not apply to you. However, in today’s market, a lot of new cars come with a five-year manufacturer’s warranty. 
    If you’re looking at a three-year-old used car that still has its original warranty, you can transfer this into your name, and protect yourself in case of unexpected breakdowns. 
  3. Dealerships check and repair them 
    Buying a lemon is a huge concern when it comes to used cars. 

Unless you’re shopping at Dodgy Bros. Car Dealership, reputable used car dealers would have checked and performed necessary repairs or maintenance to the car when it originally came in. 

Check that this has occurred before driving away, as this will give you a sense of security and peace of mind. 

Cons of used cars: 

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  1. Will break down sooner 
    If you’re buying a used car, there are simply no guarantees that the car is going to run well for the next five, ten or twenty years. You can never know how the previous owner drove the car, and whether they handed it in because it became a problem. 
    Consider having a trusted mechanic look over a used car before purchasing. 
  2. Repairs will cost you 
    If staying in budget was a key factor to your decision, the savings you made buying used could quickly go towards continued repairs and maintenance. These are things you will need to perform sooner than if you had purchased new, including new tyres, new brakes, transmission flushes etc. 
  3. Less choice on colours or features 
    Realistically, when shopping around for used cars what you see is what you get. Used cars give you less choice or customisable options than are given to new car buyers. If your heart is set on a specific feature, you may be better off buying new.

Pros

  • They’re cheaper
  • Can transfer the original warranty
  • Dealerships check & repair them

Cons

  • Will break down sooner
  • Repairs will cost you
  • Less choice on colours and features

What else to consider about used cars:

Buying a car is a highly personal decision, and there are several factors that need to be considered before deciding. However, when it comes to new vs. used car debate – don’t rule out a three to four-year-old used car. 

If this is something you or your family can afford, you will be able to take advantage of a discounted price, while knowing that the car will be new enough that you (hopefully) won’t be driving away with a lemon. Further, if the car still has its original warranty, you’ll be able to transfer this to yourself and enjoy added peace of mind.

Compare Used Car Loans Today 

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Learn more about car loans

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

What is a balloon payment?

Some lenders will offer borrowers reduced monthly repayments in return for a one-off lump sum – or balloon payment – that the borrower has to pay at the end of the loan. Generally, the total repayments on a loan with a balloon structure will be higher than a loan without.

What is the luxury car tax?

The federal government imposes a luxury car tax of 33 per cent on the value of a car above a threshold. As of the 2017-18 financial year, that threshold was $75,526 for fuel-efficient vehicles and $65,094 for other vehicles. So a fuel-efficient car worth $80,000 would be taxed only on the difference between the threshold and the value of the car ($4,474), rather than taxed on the entire $80,000. Similarly, an ordinary car worth $70,000 would be taxed on the $4,906 above the threshold, rather than the entire $70,000. The luxury car tax is paid by dealers that sell or import luxury cars, and also by individuals who import luxury cars.

What is resale value?

The resale value is the price you could realistically charge if you were to sell your car. Almost every car loses value each year, although at different rates. As a guide, cars depreciate on average by 14 per cent per year in the first three years and then eight per cent per year after that.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

What is trade-in value?

The trade-in value is the price you could realistically charge if you were to sell your car to a dealer while buying a replacement vehicle. Generally, a car’s trade-in value is less than its market value. That’s because the dealer has no interest in buying your car unless it can make a profit – which can only be done if the dealer has room to increase the price.

What is a fixed-rate loan?

A fixed-rate loan is one where the interest rate remains constant for an agreed amount of time. For example, if you take out a five-year fixed-rate loan at 8.75 per cent, the lender is obliged to leave your interest rate at 8.75 per cent for at least five years. By contrast, if you take out a variable-rate loan at 8.75 per cent, the lender can change the interest rate whenever it wants.

What is a pink slip?

A pink slip is another name for the safety check that needs to be done before a car owner can renew the vehicle’s registration.

What is compulsory third-party insurance?

Compulsory third-party insurance, also known as CTP insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your compulsory third-party insurance will be used to pay any compensation due to anyone who might be injured or killed. However, compulsory third-party insurance doesn’t cover you for vehicle damage or theft.

What is a novated lease?

A novated lease is a car lease that is ‘novated’, or transferred from one party to another. Novated leases are often used when companies provide a car as part of a salary package. The employer signs for the lease and makes the lease payments, but the employee assumes the responsibility of looking after the car. While most car leases involve two parties, novated leases involve three – employer, employee and financier.