.New Cars Vs. Used Cars
One of the first questions that car buyers face is whether to purchase a new car or one that’s used. Pre-owned vehicles tend to come with much lower price tags, but there's more to consider when choosing them. You should also consider the benefits and downsides of certified used cars (CPO cars) and leasing a vehicle.
Advantages of Buying New Cars
Buying a new car has a lot of benefits – some more tangible than others. Here are a few:
There’s No History
When you purchase or lease a new car, you don't have to worry about its past. You don't have to fret about whether any previous owners mistreated the vehicle, had accidents, or failed to do periodic maintenance, such as regular oil changes. A new car should have very few miles on the odometer, having come straight to the dealership from the factory.
You also don't have to worry about any wear and tear, like you would in an old car. The brakes and tires will be factory-fresh, and the interior immaculate.
It’s Easier to Buy a New Car
Because you won’t have to spend time researching a car’s history and getting pre-purchase inspections, it’s easier to buy a new car than to buy a used car. You also don’t have the expense of a Carfax or AutoCheck report, plus the cost of an independent mechanic’s time.
You’ll never have to wait for a title to come from a used car owner’s lender, and most dealerships will complete all of the paperwork for you.
It’s also easier to get the specific car you want. If the dealership doesn’t have a vehicle on the lot in the color or trim level you are looking for, they can order it from the factory or swap with another dealer.
You Can Get New Car Deals
Automakers frequently offer special incentives to help sell slow-moving models or vehicles soon to be replaced with updated versions. Cash back deals and special low- or no-interest financing deals can save you thousands of dollars. You can see the best incentives available on our new car deals page.
Cash back deals lower the price of the car, while financing incentives reduce or eliminate the amount you have to pay in interest over the life of your auto loan. Note that the best new car deals are reserved for customers with top-notch credit scores, so you may not qualify if your credit reports have a few dings.
New Cars Are Cheaper to Finance
Lenders look closely at risk when they decide whether to loan you money and how much interest to charge. With new cars, the value of their collateral (your car) is known. History also shows that new car buyers are more likely to pay back their auto loans. With used cars, there’s more uncertainty about the collateral value, and there is a higher risk of the financing not being repaid in full.
You do have to be a little careful, however, because a new car purchase might get you a higher interest rate if it is so expensive that your loan-to-value ratio exceeds your lender’s threshold for the best financing rate.
You Can Get the Latest Technology
When you purchase or lease a new car, you can get the freshest technology in the marketplace. With today's rapid evolution in safety, infotainment, and connectivity, even a two- or three-year-old car can be outdated. We list some of the more important new technology features below:
Safety Technology
In just the last few years, the safety technology available on cars has improved by leaps and bounds. Technology such as automatic emergency braking, adaptive cruise control, and lane-keeping assist come as standard equipment on many new vehicles, and as low-cost options on others.
Safety testing is also evolving, with the Insurance Institute for Highway Safety (IIHS) frequently making their testing more rigorous. That forces automakers to focus on continually improving safety features and vehicle design to protect occupants.
Infotainment and Connectivity
In the era of the smartphone, consumers are demanding that their vehicles keep pace with evolving infotainment and connectivity. That means, for example, that a built-in navigation system is no longer good enough – it has to be connected to outside services so you can see real-time traffic and road conditions through apps such as Google Maps and Waze. If a car built today does not support Apple CarPlay or Android Auto, it is behind the times.
A car built a few years ago might have a 5-inch infotainment display, but many of today’s cars come with screens that are 8 inches or larger. Interfaces are improving, too, enabling modern touch screens to respond like smartphone displays.
New Cars Are More Fuel-Efficient
Automakers are striving to improve the efficiency of every vehicle in their lineups, from subcompacts to full-size pickup trucks. A compact sport utility today will likely meet or exceed the efficiency of a 10-year-old midsize sedan. You’ll find fewer V8 and V6 engines in today’s cars, as they’re quickly being replaced by high-tech turbocharged four- and six-cylinder motors. Automakers are employing advanced automatic transmissions to glean every bit of energy out of each gallon of gasoline. Lightweight, yet strong, materials allow cars to burn less fuel as they roll down the highway, without compromising safety.
You Get Full Warranty Coverage
An important benefit of buying a new car is warranty protection. Most cars come with bumper-to-bumper coverage that covers everything but the powertrain for at least three years or 36,000 miles. Powertrain warranties often eclipse the basic warranty, with coverage that can extend out as long as 10 years or 100,000 miles. A new car warranty is included in the car’s price, so you don’t have to pay extra to get the coverage. You can see our list of the best new car warranties here.
That New Car Smell
For some, getting that new car smell might sound like a ridiculous reason to spend extra money. For others, however, the new car smell symbolizes that you’re the first owner of the car – no one else has been behind the wheel of your new ride. Your friends get in the car and immediately know that you didn’t go the cheap route and buy used.
Disadvantages of Buying New Cars
Buying a new car isn't a perfect option. There are several reasons purchasing a new car might not be the best choice.
They’re Expensive
Buying a new car is the most expensive way to get behind the wheel. The average new car costs more than $37,000, according to Kelley Blue Book, while the average used car price is around $20,000. Both are on the rise, and the price increases are forecast to continue.
Adding the cost of financing the higher vehicle price, and the greater auto insurance costs for the higher-value vehicles, makes the difference even more pronounced.
On top of that, once they leave warranty coverage, the advanced technology in today’s cars makes them more expensive to repair.
You Have to Buy Them From a Dealer
New cars are sold exclusively through franchised new car dealers, unlike used vehicles, which can be purchased from a variety of sources, including car dealers, used car superstores, and private parties. If you’re in an area that has few dealers from a specific brand, your ability to negotiate a great price on a new car is limited. When you buy from a dealer, a portion of the price you pay will go toward the considerable overhead that keeps a modern dealership open. Of course, there are benefits from buying at a dealer, but they do come with a cost.
You Have to Pay Lots of Sales Tax
When you buy a new car, you’re taxed on the entire price you pay, in most states. Buy a used car, and you won’t pay nearly the same amount in taxes, due to the lower transaction price.
When you purchase a used car from a private seller, you'll typically have to pay the sales tax when you title or register the vehicle with your local DMV, so you're not off the hook for paying taxes. The amount you pay on a new car lease varies by jurisdiction, so it’s a good idea to check with a tax professional before you lease.
They’re More Expensive to Insure
As we touched on a moment ago, new cars are typically more expensive to insure than used cars, especially if you need to have more types of coverage. For example, you might forgo comprehensive or collision coverage on a low-value used car, but most lenders won’t allow you to do so on a new car that you are financing.
Some lenders and most leasing companies will also require that you carry gap insurance to cover the difference between what you owe on the loan or lease and the vehicle’s value. You can learn more about gap coverage in our article on gap insurance.
Our auto insurance hub can help you find the coverages you need, car insurance discounts you may qualify for, and how to compare insurance companies.
That New Car Smell
What the new car smell actually contains are volatile organic compounds off-gassing from new plastic and vinyl interior surfaces. That’s why it’s a good idea to open the windows and hope the vaunted new car smell goes away as fast as possible.
Advantages of Buying Used Cars
Many car buyers wouldn’t get near a new car due to their high prices, but there are even more benefits to buying a used car than a lower price.
They’re Less Expensive – In Many Ways
We’ve already touched on it in previous sections, but to reiterate, purchasing a used car will save you money when you buy, when you buy auto insurance, and when that tax collector comes calling. Though the interest rate on any financing you take out will frequently be higher, the total amount of interest you’ll pay over the course of the loan will likely be lower, since the price of the vehicle is lower.
A used car can be easier to fit into a monthly budget. With lower used vehicle costs, you’ll get lower monthly payments, and you can avoid the need to take out a loan that lasts six years or more, which is a common – yet horrible – way to buy a car.
You Don’t Take a Huge Depreciation Hit
The moment you drive a new car off a dealer’s lot, its value begins to drop. It’s called depreciation. Much of a vehicle’s value is lost during the first few years of ownership, with less depreciation occurring later in the car’s life. By purchasing used instead of new, you let the first owner absorb the massive depreciation hit, giving you a much lower-priced car that will depreciate more slowly as it ages.
Depreciation is one of the largest costs of car ownership, though you won’t feel it until you go to sell the car and learn the vehicle’s value.
Your Financing Is Less Likely to be Underwater
When you owe more on your car loan than the vehicle is worth, it is called being underwater on your loan. It’s sometimes referred to as being upside-down or having negative equity. Whatever you call it, being underwater on a loan can be devastating if the car is stolen or declared a total loss after an accident. You could be required to continue paying money on a car you don’t have anymore.
Because you are likely to have a smaller loan and have a car that is depreciating more slowly than a new car, you’re much less likely to go underwater on your financing.
To learn more about how to avoid underwater car loans, take a look at our article on how to get out of an upside-down car loan.
You Can Buy a Better Car
Because used vehicles are so much less expensive than new cars, you can buy a nicer car than you might have otherwise been able to afford. That might mean a Mercedes-Benz instead of a Buick, or a roomy Honda Accord instead of a compact Honda Civic.
The price of a used car is largely dependent on its mileage and condition. If you’re willing to buy a car with higher miles, or one that’s not quite in perfect condition, you can get more car for your money.
It’s Easier Than Ever to Explore a Car’s History
Not knowing the history of a used vehicle is one of the scariest aspects of buying a used car. Today, however, it's easy to learn about a car's past by getting a vehicle history report from a company such as Carfax.com or Autocheck.com. A vehicle history report can show you a car's title history, its record of maintenance, how many owners it has had, and information about collision and repairs.
A vehicle history report doesn't replace a pre-purchase inspection from an independent mechanic, but it can eliminate cars from contention before you waste time and money.
You’ll Know What Problems to Avoid
Once a car has been on the road a few years, it will develop a reliability record. Our used car rankings and reviews include information about the total cost of ownership, so you can avoid models that are expensive in the long run and find those that aren’t costly to own.
Potential buyers can also explore owners’ forums online to see the issues current owners are facing. While all vehicles have some unhappy buyers, owners’ forums can show trends, such as early transmission failures, the cost of major repairs, or trouble using certain features.
Disadvantages of Buying Used CarsDepreciation is one of the largest costs of car ownership, though you won’t feel it until you go to sell the car and learn the vehicle’s value.
Your Financing Is Less Likely to be Underwater
When you owe more on your car loan than the vehicle is worth, it is called being underwater on your loan. It’s sometimes referred to as being upside-down or having negative equity. Whatever you call it, being underwater on a loan can be devastating if the car is stolen or declared a total loss after an accident. You could be required to continue paying money on a car you don’t have anymore.
Because you are likely to have a smaller loan and have a car that is depreciating more slowly than a new car, you’re much less likely to go underwater on your financing.
To learn more about how to avoid underwater car loans, take a look at our article on how to get out of an upside-down car loan.
You Can Buy a Better Car
Because used vehicles are so much less expensive than new cars, you can buy a nicer car than you might have otherwise been able to afford. That might mean a Mercedes-Benz instead of a Buick, or a roomy Honda Accord instead of a compact Honda Civic.
The price of a used car is largely dependent on its mileage and condition. If you’re willing to buy a car with higher miles, or one that’s not quite in perfect condition, you can get more car for your money.
It’s Easier Than Ever to Explore a Car’s History
Not knowing the history of a used vehicle is one of the scariest aspects of buying a used car. Today, however, it's easy to learn about a car's past by getting a vehicle history report from a company such as Carfax.com or Autocheck.com. A vehicle history report can show you a car's title history, its record of maintenance, how many owners it has had, and information about collision and repairs.
A vehicle history report doesn't replace a pre-purchase inspection from an independent mechanic, but it can eliminate cars from contention before you waste time and money.
You’ll Know What Problems to Avoid
Once a car has been on the road a few years, it will develop a reliability record. Our used car rankings and reviews include information about the total cost of ownership, so you can avoid models that are expensive in the long run and find those that aren’t costly to own.
Potential buyers can also explore owners’ forums online to see the issues current owners are facing. While all vehicles have some unhappy buyers, owners’ forums can show trends, such as early transmission failures, the cost of major repairs, or trouble using certain features.
Disadvantages of Buying Used Cars
While buying used instead of new has a lot going for it, getting a pre-owned car isn’t for everyone. There are many downsides to buying used vehicles.
You’re Buying Someone Else’s Discard
Ask people who always buy new cars why they do so, and many will say that they don’t want to buy someone else’s discarded vehicle – and buy all of the problems the former owner didn’t want to deal with. By thoroughly studying the vehicle history report and getting a pre-purchase inspection, the risk of buying a lemon can be reduced, but it will never be entirely eliminated.
You Never Truly Know Its History
Vehicle history reports have become pretty thorough, but they're not perfect. Things that happened recently may not be reflected in the reports. Unless an accident occurred, you’ll never know how hard or easy the vehicle was driven.
Most Used Cars Are Sold As-Is
The moment you drive a used car off a dealer’s lot or away from a private-party sale, all of its problems belong to you. With notable exceptions – like certified pre-owned vehicles – you can’t return a used car, even if it falls apart on the second day you have it. The technical term is “as-is,” and it releases the seller from nearly any claim you can make against them for the vehicle’s failings.
There’s Usually No Warranty Coverage
New cars are covered by warranties from their automakers. With the exception of certified pre-owned vehicles, the only warranty you'll have with a used car is one you have purchased. Without a warranty, you'll have to pay out-of-pocket for any repairs. Major components of modern cars can cost thousands to repair or replace.
If you’re purchasing either a new or used car at a dealership, they’ll almost always offer you an extended warranty. Before you buy at the dealer, check with your lender and auto insurance company to see if you can get a better price or enhanced coverage.
You Can’t Be As Picky
Unless you’re willing to wait a long time or pay extra, it’s unlikely you’ll be able to find the precise vehicle you want when you’re purchasing a used car. You’ll generally have to compromise a bit on the trim level, color, mileage, or condition you’re willing to accept.
Your Financing Will Likely Be More Expensive
Used cars generally require higher-priced financing, which offsets their lower price. Increased risk, in both the value of the vehicle being financed and the credit risk of the customer, leads lenders to charge higher interest rates on used cars than they do on new vehicles. The higher the interest rate you have to pay, the higher your monthly payments will likely be.
Few Used Car Deals Are Available
It’s easy to find deals from carmakers on new vehicles, but the only used car deals you’ll find are for certified used cars. Even on them, you'll only find low-interest rate offers, not cashback deals. You can see the best-used car offers on our used car deals page.
Other Options to Consider
Buying a new or used car isn’t your only option. Here are a couple more ideas that can save you a considerable amount of money compared with buying new:
Certified Pre-Owned Cars
We’ve already talked about them a lot in this article, and for good reason. Certified used vehicles blend many of the advantages of both new and used cars.
A certified pre-owned (CPO) car is a gently used vehicle that’s usually just a few years old, with low miles, and no history of major accidents. They’re closely inspected by the dealer, following the carmaker’s checklist, and are offered with factory warranties and other benefits, such as roadside assistance. Many CPO cars are lease returns or vehicles driven by employees of the dealership or manufacturer.
Factory CPO vehicles are only sold at their brand’s franchised new car dealerships. If you see a “certified” Honda at a Toyota dealership, for example, it is not Honda factory certified and will not come with the Honda warranty extensions you would receive from a true factory CPO car.
Another benefit of buying a certified used vehicle: Automakers offer special low-interest financing deals on CPO cars. You can find many of those deals on our used car deals page.
Just keep in mind that, while CPO cars have lower prices than new vehicles, they have higher prices than non-certified used vehicles.
Leasing
Leasing is a popular way to get behind the wheel of a new car, with payments well below what you would have to pay if you were buying the car outright. When you lease a car, you just have to pay for the amount of depreciation that is expected to occur during the lease term, plus interest and fees. There is often an amount of money due at signing, then equal monthly payments until the lease ends.
You don’t actually own the car – the leasing company does – and you return it to the dealer when your contract is up. There are strict mileage limits spelled out in a lease contract, as well as rules about damage, use, maintenance, and wear and tear.
While leasing is simple in concept, it comes with a language that’s different than car buying and can be confusing to consumers who have never been through the process. Our guide to leasing a car walks you through the steps to lease a vehicle, while our story on leasing versus buying shows you the benefits and pitfalls of each approach.
Leasing a Used Car
One of the least expensive paths to getting into a vehicle is by leasing a used car. Though not common outside of luxury car dealerships, leasing a late-model used vehicle gets you many of the pluses of both buying and leasing, with a price tag that’s potentially much lower than either of the other options.