Deciding Between a New or Used Car: What You Need to Know

When it comes to buying a car, one of the most significant decisions you’ll face is whether to purchase a new or used vehicle. Each option has its own set of advantages and disadvantages, and the right choice for you will depend on various factors, including your budget, preferences, and long-term plans. In this blog, we’ll explore the key considerations to help you make an informed decision. And remember, for any mortgage service needs, O1ne Mortgage is here to assist you. Call us at 213-732-3074.

What to Consider When Buying a Car

Before you decide whether to buy a new or used car, it’s essential to ask yourself a few critical questions:

• Monthly Car Payment: What would your monthly car payment be, and can you afford it?
• Interest Rates: What are the interest rates for financing? Compare the annual percentage rate (APR) for a new car loan versus a used car loan.
• Insurance Premium: How much will your car insurance premium be? Keep in mind that financing a car may require additional coverage beyond state requirements.
• Maintenance and Repair Costs: What are the expected maintenance and repair costs for the car?
• Features: Do you want a new car with the latest features, or are you okay with a dependable, no-frills used car?
• Safety Record: What is the car’s safety record?
• Reputation: Check online reviews for any cars you’re considering before making a purchase.

Pros and Cons of Buying a Used Car

Before deciding to buy a used car, it’s essential to weigh the pros and cons.

Pros of Buying a Used Car

• Less Expensive Upfront: The average buyer of a used car paid $27,147 in June 2023, compared to $48,808 for a new car, according to Kelley Blue Book. That’s a difference of over $21,000.
• Lower Car Payment: Experian data shows the average monthly loan payment for a used vehicle was $516 in the first quarter of 2023, compared to $725 for a new vehicle. This translates into annual savings of more than $2,500 on car payments.
• Lower Down Payment: The average down payment for a used car was $4,107 in the second quarter of 2023, compared to $6,823 for a new car, according to Edmunds. The average down payment for a new car was 66% higher than for a used car.
• Certified Pre-Owned Vehicles: A certified pre-owned vehicle is a late-model used car that a franchised dealership sells after a rigorous inspection and reconditioning. This option can provide a lower-cost vehicle with fewer worries.

Cons of Buying a Used Car

• Higher Interest Rate on Financing: The average APR for a 68.5-month used car loan was 11% in the second quarter of 2023, compared to 7.1% for a new car loan, according to Edmunds. This means higher interest costs over the life of the loan.
• Higher Maintenance or Repair Costs: Used cars generally cost more to maintain and repair. For example, maintenance costs for a Toyota Corolla jump from an estimated $148 in the first year to $755 in the 10th year, according to CarEdge.com.
• Limited Warranty: A used car may come with a shorter or less comprehensive warranty than a new car.
• Outdated Features: Older cars may lack the latest features, such as advanced infotainment systems.

Pros and Cons of Buying a New Car

Before getting behind the wheel of a new car, it’s wise to consider the pros and cons.

Pros of Buying a New Car

• Better Condition: A new car typically has fewer problems and a better maintenance history.
• Lower Interest Rate on Financing: New car loans often have lower interest rates, leading to significant savings over the loan’s life.
• Better Warranty: New cars usually come with longer and more comprehensive warranties.
• Lower Repair and Maintenance Costs: Repair and maintenance costs are generally lower for new cars. For instance, the estimated annual costs for a Honda Civic are $183 in the first year, rising to $977 in the 10th year, according to CarEdge.com.

Cons of Buying a New Car

• More Expensive Upfront: New cars come with a higher price tag, leading to sticker shock for many buyers.
• Faster Depreciation: New cars lose 20% or more of their value within the first year. Depreciation slows down at the five-year mark and stops around the 10-year mark.
• Higher Sales Taxes: The higher the car’s price, the more sales tax you’ll pay.
• Pricier Car Insurance: Insurance for new cars is typically more expensive due to higher repair costs.

The Bottom Line

Deciding whether to buy a new or used car involves considering various factors, such as the price tag, monthly car payment, annual maintenance expenses, and expected insurance premium. To determine how much you might need each month for a car loan, use a car payment calculator. Running the numbers and having a clear idea of your budget will help you narrow your search and avoid falling in love with a car that’s out of your price range.

For any mortgage service needs, O1ne Mortgage is here to assist you. Call us at 213-732-3074, and let us help you make the best financial decisions for your future.