Should I Buy a New Car? — Your Auto Financing Questions Answered
Here’s what to consider when deciding whether to buy used or new.
Contributing Writer at Tally
September 10, 2021
If you’re about to begin the car-buying experience, the first question that likely comes to mind is, "Should I buy a new car or used car?" The answer has become a bit tricky due to the rising prices of automobiles. The price of a used car is the highest it's ever been, according to Consumer Reports.
In this article, we help you determine whether you should purchase a new vehicle or a used vehicle. We also provide tips to help you save money and make wise choices during the purchasing process. By the end of this article, hopefully, you’ll have some clarity about how to navigate the car-buying process.
Should I buy a new car or a used car?
Whether you should buy a new car or a used car can be tricky. The answer is not always about your personal finances or the purchase price. Below is a breakdown of the possible reasons to buy a new car or a used car.
Reasons to buy a new car
There are a few reasons why you may want to consider purchasing a brand-new car. For one, you'll likely receive the latest and greatest when it comes to safety features. This could potentially reduce your auto insurance premium. It could also provide peace of mind, especially if you have a family or young children.
Another feature you're likely to see is better fuel efficiency. If your car has the most fuel-efficient technology, you’ll save on the cost of gas.
Additionally, you’ll probably receive a manufacturer's factory warranty. If something goes wrong with the car in the first year, your manufacturer will cover the repairs. Again, this could save you money in maintenance costs.
Furthermore, the best car offers also come with roadside assistance, which is often not included with used car purchases. This could save you money on a third-party roadside service like AAA. However, this may not be a big tipping point, as many car buyers obtain roadside assistance elsewhere, like from their car insurance company or through their credit card.
Lastly, many car dealerships offer attractive financing deals, especially if you have a good credit score. You may secure an auto loan with little to no interest. The interest rates and loan terms that come with a new car purchase may be more favorable than if you're buying used.
Reasons to buy a used car
There are also strong reasons why you should consider a used car. For one, it’s likely cheaper than a new car and better holds its value. As soon as you drive a new car off the dealer's lot, it loses about 10% of its value. This is not the case with a used car since most of that depreciation has already been accounted for.
Additionally, though you won't receive a factory warranty, you may be able to purchase an extended warranty, either from your car dealer or a third party.
When buying a used car from a dealership, you can often purchase a certified pre-owned vehicle. A certified pre-owned car can be more expensive than other used cars, but you'll know its history, and it may come with an extended warranty.
Consider the big picture when choosing between new and used cars
To summarize, there are advantages to purchasing new and used vehicles. When making your decision, focus on both the upfront and ongoing costs. This takes a bit of homework beyond the sticker price.
Below are some of the costs that you need to consider when purchasing a vehicle:
The trade-in value of your old car, if you have one
The taxes and fees associated with the closeout process
The down payment required for purchasing
The cost of car insurance
Maintenance and repairs (including warranties and what's covered by automakers)
Fuel and oil
You should also consider how long you expect to have a car. For instance, if you tend to trade in a car every couple of years, you may always be covered by a manufacturer's warranty. This means that you may save on maintenance costs.
So, the pricing associated with your car purchase is not always straightforward. Whether you should buy a new or used car depends on:
How much you drive
How often the car needs maintenance
It also may depend on your credit score, which impacts your financing options from lenders.
Tips to help save money when purchasing a car
A car payment is right up there with a mortgage and student loan payment as one of the most costly monthly expenses. Taking on a car payment can be overwhelming, especially if you haven't done so before. Below are some tips to help you save money when purchasing a car.
Buy in cash
If you have enough saved, consider purchasing in cash. This ensures that you won't have any interest payments, as you're not borrowing money and are only paying for the cost of the car. Some dealerships — especially those selling used cars — may be more willing to give you a discount if you pay in cash.
Shop around for the best rates
You may feel pressure when buying a car, but you should still practice patience and find a loan option that's right for you. Compare rates from dealerships and lenders. If you don't like the rates you're seeing, consider improving your credit score.
Keep your monthly payment low
A good way to fit a car payment into your monthly budget is by keeping your required payment low. Your monthly car payment will include interest and principal (the amount you borrowed to pay for the car). So, in addition to getting the lowest interest rate possible, you should aim for a low principal amount.
To keep the principal low, choose a car with a low purchase point or make a down payment during the initial buying process. Making a down payment helps reduce the total amount that you’re borrowing. Experian recommends that you put down at least 20% of the total purchase price.
Another way to lower your monthly payment is by trading in an existing vehicle. You can research ahead of time by using sites like Kelley Blue Book or Edmunds to figure out how much your existing vehicle is worth. Doing so allows you to develop a plan to help offset the cost of your new vehicle.
Keep the financing duration short
The longer your loan duration, the more you’ll pay in interest. Stretching out your loan may reduce your monthly payment, but it will end up increasing your total amount paid. If you can afford to do so, keep your financing duration as short as possible to help lower your total interest paid.
Do your homework when buying a car
Buying a car can be a stressful experience, especially when looking at new car prices and used car prices. Determining which one is right for you very much depends on your financial situation.
Remember to take time during the purchasing process and weigh the overall picture. The sticker price is not necessarily the price you'll be paying over the next five to 10 years.
Factor in things like fuel, insurance and maintenance. Being strategic and doing things like paying upfront or keeping your loan duration short could help make your purchase more affordable.
If you want to pay down credit card debt before making a car purchase, consider Tally†. Tally helps you repay higher-interest credit card debt by offering a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.