Should I Buy a New or Used Car?

Key takeaways

• New cars are more expensive up front, but you can customize them with the exact features you want.
• You’ll have to do research to make sure a used car is roadworthy before buying it, but you can save a lot of money by purchasing a used vehicle.
• If you’re looking for a deal, go with a used car you’ve had inspected or a certified pre-owned (CPO) vehicle.
• If you want new car features but don’t want to front the cost of depreciation, consider leasing your car.

Used or new car: Which is better?

Pros and cons of buying a new car

 Lower interest rates

While new cars have a higher sticker price than used cars, new car interest rates are lower, meaning you could spend less money on interest on a new car loan.

 Customized features

When you’re buying a new car, you can choose the exact features you want down to the paint color, trim, accessories and tech. You can essentially design your dream car, and as long as you’re willing to pay for the features and potentially wait for the exact car you want, you can get it.

 Comes with warranty

New cars come with a manufacturer warranty that covers repairs due to defective parts for a certain period of time, typically three years or 36,000 miles. Since consumers spend an average of $1,160 a year on car maintenance and repairs, knowing that your warranty covers certain expenses could give you peace of mind.

 Wear and tear on vehicle

New cars cost more than used models. Borrowers take out around $41,000 to finance new cars and $26,000 to finance used vehicles, according to Experian — that’s a difference of $15,000.
This means that you’ll have to come up with a larger down payment for a new car, and your monthly payments for a new vehicle will likely be much higher.

 Loses value quickly

New cars lose about 20% of their value over the first year. This is called depreciation. The high rate of depreciation for new cars makes a strong argument for buying a used car. If you plan to sell your car within the first few years of owning it, consider buying a used or CPO car.

Pros and cons of buying a used car

 Cheaper than a new car

Used cars cost less than new models, so you can save thousands by buying a used car. This also means that you’re less likely to owe more on your car loan than it’s worth, or have an upside-down car loan. If your budget is tight, it makes good financial sense to choose a used car.

 Less depreciation

Cars lose 60% of their value in the first five years, so when you buy a used car, you allow the first owner to front some of the costs of depreciation. That means that if you decide to sell or trade in your car a few years down the line, your car won’t have lost as much of its value.

 Higher interest rates

You’ll save on the sticker price of a used car, but if you plan to get a loan for your used vehicle, be prepared to pay higher rates. The current average interest rate for used car loans is around 12.01% according to Experian, but the rates you qualify for will depend on your credit score and credit history.

 Unknown history

While used cars can come with a VIN check that allows you to see a record of the vehicle’s accident and maintenance history, it’s difficult to be certain of a vehicle’s exact history. Make sure you ask the right questions and pay a professional mechanic to inspect the used car before you buy it.

New vs. used car interest rates

When debating new versus used car financing, take into account the total amount you’ll pay in interest. We’ve compiled the average new and used car loan interest rates, as well as average monthly payments for new and used cars.

New car payments are about $300 higher per month on average because new cars cost more than used ones. But used-car owners will typically pay higher interest rates. Use our car affordability calculator to estimate how much car you can afford based on your desired monthly payment and down payment.

How much will a new or used car cost me?

Alternatives to new and used cars

Certified pre-owned vehicles

Car buyers who want a deal but don’t want to take on too much risk should consider certified pre-owned cars. Manufacturers thoroughly inspect and repair CPO vehicles before listing them for sale, and they typically come with a full vehicle history report and extended warranties.

Leasing a car

When you lease a car, you’re renting it for a set period of time. You’ll pay predictable monthly payments, and these payments tend to be lower than monthly car loan payments. That said, you won’t have equity (or ownership) in the car, and you’ll likely have to pay additional fees.