Buying Used versus New Cars

Owning a brand new car is exciting. But financially speaking, it makes more sense to buy a used car. As soon as you drive a new car off the lot, it loses a great portion of its value. This is because your car is no longer “new”.

New cars lose about 40% of their value within three years, and then depreciation starts to slow down. You may decide to buy a used car and allow someone else to take that depreciation hit.

The previous owner will have absorbed the steepest part of the depreciation cycle. At that point, the costs of owning and operating the car will be reduced.

As with everything, there are a few downsides to buying a used car. There are greater chances for costly unwarranted repairs. You may very soon have to do major maintenance on your car, including replacing tires, battery, brakes, muffler and perhaps even the transmission.

A used car is usually less reliable. You don’t know exactly what you’re getting into and how the previous owner treated the car.

If you can pay cash, go the new car way. Enjoy the feeling of knowing you're the original owner of a new car. That is a good feeling. On the other hand, do not hang your hat higher than you can reach. If you don’t have cash, practice financial prudence and buy a used car rather than a new one.