Costs of New vs. Used Cars

By Garrett Lloyd | Aug 31, 2021 8:08:00 AM

There’s nothing quite like your brand-new ride having the latest technology, a modern design, a clean interior, and zero maintenance issues. But is buying a used car the more responsible thing to do moneywise? This, of course, depends on your individual financial situation. Both new and used vehicles have advantages and disadvantages when it comes to cost. Let’s take a look at some of them.

Price Tag

This is probably the most obvious difference between new and used cars. New auto models will cost more than their used counterparts. Besides enjoying that "new car smell," the benefits of purchasing a new, unused vehicle can include more bells and whistles, newer technology, cleanliness, new or updated safety features, and greater reliability.

Depreciation

Depreciation refers to how much value an asset has lost over time. New automobiles are hit hard by depreciation. On average, a brand-new car will lose 10% of its value the moment you drive it off the lot. Some vehicles (particularly more reliable ones) are better at retaining their value than others. In general, however, a car’s depreciation will occur rapidly during the first few years before slowing down. Going with a used vehicle allows you to sidestep the years when depreciation is at its greatest. Even if you purchase a car that's just a couple of years old, you could have a car that's still considered modern and save quite a bit of money at the same time.

Interest Rates

If you take out an auto loan, your lender may charge higher interest on a used car than a new car. This is because older vehicles have a lower resale value due to higher mileage and regular wear and tear. Lower resale value means financial institutions risk more by lending on used cars; for example, if a borrower defaults on their loan and the lender has to repossess and resell the vehicle. Higher interest helps make up for the money a financial institution could lose if such a situation occurs during the life of the loan. Another reason used-auto loans may be more expensive is that the exact value of a vehicle becomes more difficult to determine as the car ages. When a lender takes on a loan for a used automobile, they risk lending too much for a vehicle that may not be worth as much as initially estimated.

Insurance Costs

The lower the value of a car, the less it will usually cost to insure. This means buying a used car could save you money on insurance when compared to buying a new model of the same vehicle. This is especially true for collision coverage.

Fuel

Updated technology often means a newer vehicle model will consume less fuel than an older model. Less fuel means greater savings for you.

Taxes & Registration

Since a newer model of car will cost more than an older one, the taxes will also cost more. Additionally, registration fees will also be more expensive for a new vehicle.

Maintenance

Newer vehicles will usually cost you less to maintain. In general, a car will become less reliable as it ages. This means you may have more maintenance costs with a used vehicle.

Topics: auto loans, cars, auto insurance, depreciation, car costs, interest rates, car maintenance, used cars

Author: Garrett Lloyd