Why Buy Used
Consider the Advantages of Used Cars
Buying a used car or truck can save you money because a new car experiences its greatest loss in value within the first 12 to 18 months. Rather than watching value decrease significantly in just the first year, consider buying a used car or truck. A used car can have a lower purchase price with lower monthly payments, and the factory warranties are usually still available. Buying a used car allows you to upgrade to the newer make and model you want and add more optional features.
Used Cars Depreciate Less
Why Throw Money Away on New Car Depreciation?
Thinking about buying a new vehicle? Think again. According to the experts at Kelley Blue Book®, in three years a new vehicle could depreciate by as much as 73 percent of its value. At best it will retain a mere 62 percent of its value after three years. That's one major advantage to buying a used car.
Car depreciation is the dark cloud hanging over new purchases. While most cars depreciate by 15 to 20 percent of their value each year, the first year tends to hurt the most. In fact, the two-minute drive off the lot can cost some owners up to 15 percent of their new vehicle's value.
If you're a car buyer unwilling to throw away money on car depreciation for that new car smell, consider buying a high-quality, late-model used car. In addition to a lower purchase price, lower registration and license fees, you'll also enjoy lower depreciation, as the previous owner has already absorbed the steepest portion of the used car's depreciation cost.
Used vehicles are often the best values you'll find in the automotive market. This is especially true for models just two or three years old. Not only is the price lower than a comparable new car's, but continuing ownership expenses such as collision insurance and taxes are lower, and a two- or three-year-old used vehicle has already taken its biggest depreciation hit. In addition, buying used is a way to get a nicer car than you'd be able to afford new.
But buying a used vehicle means finding the right balance of value and risk. Following are some issues to consider.
Reliability. One thing that has made used cars more appealing is their improved reliability. In an analysis of Consumer Reports' annual subscriber surveys over the past few years we found that five-year-old vehicles in the latest survey had one-third fewer problems than the five-year-old vehicles we looked at in 2006. Years ago rust and exhaust-system problems were common, but that's no longer the case. As a result, buying a late-model used vehicle is not as much of a risk as it used to be. When properly maintained, today's vehicles should easily surpass 100,000 miles without a major overhaul, and many could reach 200,000 miles.
Warranties and repairs. Although used cars are more reliable than ever, maintenance and repair costs are important considerations. In the first two or three years of a car's life, it has fewer problems and is typically covered by a comprehensive warranty. A used car, on the other hand, is usually out of warranty or close to it. You can expect not only more problems as time goes on, but more costly ones as the years pile up.
This means that owners will have to pay for repairs out of pocket. Most repairs will be for wear parts like tires, brakes, and batteries. But even if you replaced all those things the moment you bought a used car, the savings versus the new-car alternative would more than compensate.
There is always the risk that you'll buy a lemon. Even a car with a great reliability history can be a poor example, or it may have been abused, neglected, or damaged by a previous owner. By having the vehicle thoroughly inspected by a qualified mechanic, you can inoculate yourself against nasty surprises.
Depreciation. A major disadvantage of buying a new car is the rapid depreciation it undergoes in the first few years. Models typically lose about 47 percent of their value in the first three years, compared with 24 percent over the next three. But this varies greatly among models. The BMW 328i, for example, has held its value relatively well (about 40 percent depreciation over the first three years), while the Lincoln MKZ has depreciated more rapidly (about 50 percent).
Several factors determine depreciation, including the model's popularity, perceived quality, supply, and whether or not the vehicle belongs to the current design generation. The average depreciation on a $27,500 vehicle leaves less than $15,000 ($14,575) after three years, a huge hit in residual value.
Interest rates. Loans for new cars usually have a lower interest rate, but the difference is often not a major concern. In April 2012 the national average for a 48-month new-car loan was about 3.28 percent, according to Bankrate.com; a 48-month used-car loan was about 3.69 percent. When rates are within just one percentage point of each other, the additional interest you pay on a typical used-car loan adds only about $7 to $15 to the monthly loan payment.
Insurance. You'll typically pay a bit less to insure a used vehicle than a new version of the same model. The insurer Progressive quoted a New York policyholder with a good driving record $497 for a basic six-month policy on a three-year-old Honda CR-V EX and $503 for a new CR-V, which would equal $12 in annual savings.
Safety. Buying a used car means you might not get the latest safety features. Newer features such as electronic stability control (ESC), head-protecting curtain air bags, and advanced frontal air bag systems are hard to find on older vehicles. But safety features such as antilock brakes, traction control, and side air bags have been commonplace for quite a few years now. LATCH child-seat anchors have been mandated since 2002 and top tethers since the 1999 model year.