You’re ready to buy and finance a car. But should you buy new or used? With a shortage of computer chips and supply chain issues, there is a lack of inventory of new cars, resulting in higher prices. And although used car prices have begun to normalize, their price tags are still relatively higher than they were just a couple of years ago. The good news is you may be able to finance either new or used. Here are some factors to consider:
Potential Advantages of Financing a New Car:
- Lower Interest Rates on a Loan: Lenders may offer lower interest rates on new car loans as opposed to used car loans, especially if your credit score is above 661. Whether you finance with the dealership or another lender, you may also find incentives to buy new.
- Fewer Repair Bills: That new car rolling off the lot may require less maintenance and fewer repairs than a used car, particularly in the first few years of ownership. However, even if a repair is required, the issue may be covered under a new car warranty
- Customizable: Even if you don’t custom order your car, you may be more likely to find the automobile of your dreams when it’s brand new. With a new car, you can select the color, features, and accessories. When you buy used, your purchase includes what was previously installed in the car, along with the wear and tear from a previous owner.
Potential Disadvantages of Financing a New Car:
- Higher Sticker Prices: In the best of times, new cars cost more than used cars, but with low inventory and high demand, there are fewer discounts and promotions offered on new cars. Dealerships don’t need to lower prices to attract customers when they have waiting lists of people ready to buy. New cars may also come with additional fees such as shipping charges, destination fees, and dealer preparation fees that you won’t find on a used car.
- Depreciation in Value: Depreciation refers to the difference between how much your car is worth when you buy it and what it’s worth when you sell it. The value of cars tends to depreciate by 15% – 25% every year until it hits the five-year mark, but with recent shortages of both new and used cars after the Covid-19 pandemic, the first year drop in value was cut by more than half. Note, however, that some car brands also hold their value better than others. You can compare various models at Kelley Blue Book’s 5-Year Cost to Own.
Potential Advantages of Financing a Used Car:
- Lower Sticker Price and Depreciation: You will usually pay less for a used car than a new one. On some car models, the price will be 14% to 23% lower than a new car. However, these days there are actually some car models where a used car costs more than a new one. If you pay less for a car, you may be able to pay off a used car loan faster, saving you money on interest charges. Also, most of the depreciation on a used car has already occurred by the five-year mark.
- Lower Insurance and Taxes: Your older car may be cheaper to insure because its overall value is less. And states that charge automobile sales and excise tax do so based on the cost and value of your car. The lower your car is valued, the less you will pay in insurance and taxes.
Potential Disadvantages of Financing a Used Car:
- Higher Interest Rates: While interest rates are generally higher for used car loans, you can finance a used car.
- No Knowledge of Past Repair Issues: No one wants to buy a lemon, but most dealerships will carefully inspect a used car before offering it for sale. Certified Pre-Owned vehicles have been inspected, refurbished and certified, assuring you that the vehicle is of high quality. An extended warranty might also be offered.
- Higher Repair Bills: Starting at about the 60,000 mile mark, major components such as brakes, rotors, battery, hoses, and water pumps may need to be replaced.
The best way to make a decision on buying a new versus a used car is to collect all the information on total prices and loan payment amounts and then compare.
Are you in the market for a new or used car? Consider financing your automobile with the help of Mariner Finance. Apply today.
