New Cars – New cars will depreciate up to 30% the moment they are driven off the car lot at the Dealership. Additionally a new car can depreciate another 10% per year after it is driven. So after 3 years of driving you may only get 50% of the vehicles original purchase value back. Logically you might think a new vehicle would hold its value much better than a used one, but actually the opposite is true.
Used Cars – Even though a used car will lose a lot of value over time, generally it won’t depreciate as fast as a brand new vehicle. For comparison sakes, if someone purchased a brand new truck for $80,000, and it depreciated to $40,000 (roughly 50% of its value over 3 years) then the cost of driving the brand new truck for 3 years would be $40,000. If the same truck was then sold for $40,000 to the second owner, the truck would only depreciate about another 25% of the used purchase price to $30,000 and it could probably be sold for around $30,000 to the third owner. The cost of driving a low kilometer used vehicle was only $10,000 for the second owner.
Financing Options or Buying Cash
New Cars – Many people can’t afford to purchase a new vehicle outright with cash, and many will choose to finance the new vehicle. The interest rate, fees and length of the loan will determine the overall total cost of borrowing plus cost of buying the brand new vehicle. Many dealerships and manufacturers offer incentives to purchase a new vehicle, such as cash rebates or low interest rates, even 0% interest for several months to years. This is a very important factor to take into consideration when deciding to buy a brand new or a preowned vehicle. Check out our car loan calculator here.
Used Cars – Pre-owned vehicles are a great value and you can potentially save you lot of money. Although used vehicles don’t have the same manufacturer or dealership incentives as a new vehicle, a very good interest rate may be offered by lenders and banks. Buying a year or 2 year old used car at 40% of the original purchase price and financing a smaller amount of money will reduce the overall compounded interest you will pay over the term of the loan. You may also be able budget and choose a shorter term to pay back the loan. For instance maybe only 3 years as opposed to 6 or 7 years as you might finance a brand new car. There is also the option of buying the used vehicle with cash and further reducing the overall cost of your purchase. Check out our car loan calculator here.
Manufacturers & Extended Warranties
New Cars – When a vehicle is brand new it comes with a manufacturer’s new car warranty. New car warranties vary in kilometers and length of time. The standard warranty on vehicles has increased on many makes and models mostly due to the competitive import market. Many offer 5 year / 100,000 km bumper to bumper warranty now and some even higher. It is definitely something to consider when looking into a new vehicle purchase.
Used Cars – When a vehicle is used a portion of the warranty has already been used. It is important to know the in service date as well as the manufacturer’s warranty for drive train and bumper to bumper coverage. It is also important to know what the manufacturers recommended maintenance items are and when they should be performed. Some vehicles have very high cost maintenance, such as some luxury brands like BMW, Cadillac and others that might require some costly service items to uphold the manufactures warranty. Many used cars with low kilometers and only a few years old are sometimes the best value, depending on how much warranty is remaining. Mitsubishi for example has a drive train warranty of 10 years! or 160,000 kms! Others typically have 5 year and 100,000 kms. You can always purchase an aftermarket extended warranty on a used vehicle as well. Used car warranty companies offer lots of different options to suite almost any driver. Many times the added cost can be financed into the vehicle loans as well. Banks and lenders favor newer model vehicles with warranty since it reduces the risk of people throwing in the towel if they experience costly repairs.
New Vehicle Insurance – Typically a brand new vehicle will cost more to insure, since it will cost more to replace if it is stolen, written off, or damaged.
Used Vehicles Insurance – Typically a used vehicle will cost less to replace than the identical used vehicle, even of the same year. It has already depreciated and the replacement cost is not as high as that of a brand new vehicle.
Make Model & Trim
Brand New Car – Choosing a brand new car may have a lot of benefits, but you may have to sacrifice some wants of needs and take a lower Make Model or Trim Line to fit the vehicle into your budget and comfort zone.
Certified Pre Owned – A pre-owned vehicle of a higher caliber may be more attainable when choosing to buy a pre owned vehicle since the cost is typically lower than the identical or almost identical brand new vehicle.
Length of Ownership
Brand New Vehicle – The first few years of a vehicles life are the heaviest portion of the vehicles overall depreciation. A few years after you buy a new car the depreciation curve starts to flatten out more and there is not as much loss over the remaining years. If you plan to keep your vehicle for a long time, such as 4-10 years or more, then a new vehicle may be a better choice.
Used Vehicle – If you plan to change your vehicles often, and or you are not certain about your future needs, then a used vehicle may be your best option, because a used vehicle will not lose as much as the brand new one over the next few years. You will probably find it easier to sell it, or trade it in, upgrade to something else. Someone else has taken the initial and largest cost of buying it new and driving it off the lot. So why buy a new car or a used car? There is not right or wrong answer, but only personal preference and which one fits your wants, needs, budget, and life style.
Check out our payment calculator here as part of your research.