New cars win on interest rates but used cars are still the healthier investment.
There’s nothing like the satisfaction of driving a brand new car off the showroom floor. That ‘new car smell’ and the peace of mind that your choice of wheels hasn’t been abused by neglectful previous owners or worked on by dodgy mechanics also helps.
Of course, these moments are short-lived. Within just a few weeks, your car isn’t new anymore and its value has already started to surge southwards, a situation that begs the question: is it really better to buy new?
New cars: the best features and the fastest initial depreciation come standard
Low interest rates, extended warranties, and access to the latest technologies are all positives for buying a new car. While contemporary features merely enhance the feel-good factor, low interest rates have tangible financial benefits; banks offer better rates on new vehicles because they’re worth more and have not yet been affected by depreciation… they will, however, lose around 10% of their value the moment you take it for its first drive, which is a greater loss in value than you’d see if buying second hand.
Any finance institution or dealership will also require that your new vehicle is fully insured until it is fully paid, and naturally a new vehicle will result in a higher monthly premium.
Used cars: cost-saving the biggest advantage
With new cars depreciating rapidly over the first three years, buying used means you benefit from a much more affordable purchase price. It’s worth researching the residual values of your chosen make and model, as some cars depreciate a lot quicker and this could affect your choice of car. Lower insurance premiums are another bonus, and it’s worth noting that a low-mileage, two- or three-year old model with a perfect service record could potentially be a better choice than a new car, with all the teething issues ironed out.
So, should you go the new or used route? The answer depends entirely on your viewpoint.
Looked at from a purely financial perspective, a used car comes out on top easily. New cars are simply poor investments because of their steep initial depreciation, something that won’t affect a used model to the same extent. Savings on fuel economy and the inclusion of a warranty on new cars are also unlikely to make up for the added initial cost.
As for the more superficial aspects of car ownership such as access to the latest technologies, a new model obviously wins. You are also unlikely to have to worry about maintenance for some time, which for many, is enough incentive on its own.
In both cases, we believe that each buyer should weigh up the pros and cons of new vs. used before making a final decision, and to consider the following:
- If you can afford a more expensive used car, downgrading to a cheaper new model could offer you the best of both worlds.
- Used cars could be the smarter option for savvy buyers who are familiar with cars and the motor industry – if you find a good deal, you could end up with a much better car than you could have gotten new (and for the same price).
- Your attractive warranty on that new car will likely run out before your loan payment period.
- If buying used, try to anticipate the major maintenance costs and factor those into your budget, too.
If it all sounds like a maze, our recommendation is to consider a two-year old model from a respected manufacturer at the amount you can afford. This will get you a balanced combination of value, modernity, reliability, and likely the remainder of a service plan and/or warranty.
Contact Yes Loans and get the best car-buying advice