There are many reasons to buy both a new and used car. Everyone needs a vehicle right? I'm going to help explain a bit more in detail about the buying process of both new vs. used, after reading the article you will be able to decide which option works best for you.
Depreciation
Let me start this article about the talk of depreciation, since it has been a big discussion as to why people think it is better to go used over new.
All vehicles depreciate new and used alike, so on this topic for that be an argument in either direction we will need to look at what type of buyer you are.
When using this as a deciding factor in buying a vehicle you need to ask the question "how long am I going to keep it, how much do I drive, am I financing or paying cash, and what is cost of ownership."
Every manufacture has different depreciation rates in the market as well, so your research on who holds their value would as help save you some money when its time to trade it in.
I'm not going to go into full detail on cost of ownership or deprecation rates, those would both belong in articles all on their own. I will be releasing articles about those subjects in the future, until then there are many good sources on the internet that help explain them, such as edmunds and caranddriver. I will however start with how your paying for the vehicle.
How are you paying for the vehicle?
you might find yourself asking why this is a topic of discussion on buying a new or pre-owned vehicle, well it will make a big difference when you factor in APR. If your paying cash you cant ignore this section as of yet, keep reading.
Banks look at several factors to calculate risk factors when loaning their money to you. A pre-owned vehicle unless certified or almost new will always have a higher interest rate then if you were to purchase a new vehicle. The savings on the interest alone between new and used could mean the difference between what is a better deal over the course of the loan. Make sure to calculate the cost of interest between what you are approved for both new and used to really find what works best for you.
For the cash buyers, there are many programs out their earn your business as a finance customer. Nissan for example will offer extra money off the vehicle if you finance with them ( Nissan Motor Acceptance Corp.) or even offer qualified buyers 0% APR. If they are loaning you money for free, why not let your hard earned money collect interest?
Do you keep your vehicle for a long time or trade out often?
The average car buyer will trade into a new vehicle every 3-4 years. There is an exception to this obviously in both directions, some people will keep a vehicle for 10 years and some will keep it for 1. Lets talk about all of the above.
If you are the person that keeps a vehicle for only 1-3 years and decides its time for a new vehicle then the best option for you is leasing a new vehicle. leasing has gotten its bad share of publicity over the years because most people really don't understand how it works.
I would say a lot of people fall into this category, over the years I have experienced people coming into me and saying " John, I need a different vehicle" for whatever the reason. If they are financing doesn't matter if it was new or used and they had a term of 60-72 months + they come to me with negative equity in their old vehicle.
Negative equity is a very slippery slope, You come in after completing 2 years of a 6 year loan that you pay the minimum payments on and then say "you know what, I want a new car... " you just fell into the first step of having extremely negative equity.
depending on the vehicle new or used, you will be upside down in the vehicle a couple thousand dollars or more (unless you put down a nice down payment in the start)
This process is repeating, you get into a new car and roll over your previous cars negative equity into the next, and the next... and so on until the 2nd-3rd vehicle where you have too much negative equity to be able to afford trading again until the vehicle is paid off.
The way to avoid this is to lease, getting into a lease is a great option for those of you that like a new vehicle every few years. The average lease term is 36-39 months with milage options that range from 10,000miles/yr to 18,000 miles/yr. after which time you go back into the dealership and pick out a brand new car and do it again.
