The primary hazard with most major purchases are the hidden costs. Cars are no different. Whether you believe you can get a better value for a new or used car, the main thing you need to be aware of is the number on the sticker is rarely an accurate indication of how much that car will actually cost. In fact, you are unlikely to get off the lot before that number changes several times.
If you are trying to decide whether a new or used car is the right financial decision, you need to take several factors into consideration, including how the vehicle will be paid for, what your other expenses will be, and how soon you plan to replace the vehicle. Here are some things to consider.
Maintenance and Warranty
New cars gain a massive advantage over most used cars because they are far less likely to break down. Even if they do, new cars are usually covered by comprehensive and quite valuable warranties that will either reimburse a driver for repair expenses or replace the vehicle altogether if the repairs become burdensome or expose a flaw in that particular vehicle’s manufacturing.
While used cars are less expensive than new cars overall, the fact is they don’t have the same kind of protection or practical means of avoiding additional expenses due to wear and tear. To be fair, many used cars, especially those that aren’t that old, do have warranties. However, used car warranties are usually rather limited in both duration and what they cover.
Replacement Schedule
If you are planning to keep a vehicle for a long period of time, a used car is often the better option, even with the increased potential for repair costs and increased wear and tear. The reason is vehicle financing for new cars is designed around the same basic concept as home financing. Far more loans are paid off through trading one vehicle for another than they are by making the 60th out of sixty payments. This is one reason new vehicle leases are so popular. Since lessors of vehicles generally plan on replacing the car within two to three years anyway, there is little reason to go through the expense and hassle of purchasing the car in the first place.
Insurance
Anyone who has ever been in the market for cheap car insurance quotes has run into the problem of the sometimes dramatically increased cost of insuring a new vehicle. Even if a driver pays cash, the necessity to protect an expensive vehicle from damage or theft leaves owners with little choice but to buy comprehensive or full coverage for their cars. Over the course of five years, those insurance premiums can add as much as 20% or more to the overall month to month cost.
This is doubly true if the vehicle is financed, as the finance company will almost always insist on full insurance coverage for the vehicle at the buyer’s expense. Not having insurance can breach the purchase contract for these cars, so it again leaves drivers with little choice.
Used cars, on the other hand, often have lower insurance costs because replacing them is far less expensive. Further, many used vehicles are not valuable enough to insure, since the cost of the premiums can often exceed the entire value of the car over a long enough time frame.
Many factors must go into the decision to purchase either a new or used car. The amount of the payment and the purchase price are among many things that must be weighed before a good decision can be reached. If you are considering one or the other, make sure you are aware of all the potential costs before you buy.
