Budgeting

Buying a New Car vs. Buying a Used Car: Which Should You Choose?

Price and warranty coverage will be factors to consider

By

Updated on April 1, 2022

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Cars in dealership lot — Photo:
Tramino/iStock

When it comes to buying a car, you have a number of decisions to make. Not only do you need to pick the make and model of your car, you also will need to decide whether you want to buy a new or used car. A brand-new car may have a better warranty and the latest technology, but it's likely to be more expensive than a used car, and it will depreciate more quickly.

What's the Difference Between Buying a New vs. Used Car?

New	Used
Usually has a warranty	May not have a warranty (unless certified pre-owned)
May have better financing	May cost less to insure
Will have the latest technology	Has already depreciated a great deal before you buy it

Warranty

The advantage of buying a new car vs. a used car is that new cars generally come with a warranty. The warranty should cover most major problems and repairs that crop up in the first few years of ownership. However, most new cars will require very few repairs in the first few years, so you can focus mostly on maintenance.

Compare this to buying a used car, which may not be as reliable as a new one due to its age. You may need to do more repairs on a used car. These repairs are likely not covered under a warranty, as they would be with a new car.

However, you do have the option of buying a certified pre-owned car. A certified pre-owned (CPO) car has been inspected and resold by the manufacturer, and it may even come with a warranty.

As technology has improved, cars have become more reliable, and many models do not need repairs until they have been driven more than 100,000 miles. At that point, they may be close to 10 years old. This means that you could buy a used car that is three years old and sell it after five years without needing to do any major repairs on it. You may even be able to sell it at a price very close to what you paid for it.

Note

If you do buy a used car, you may want to set aside a little bit of money each month to cover any car repairs that come up.

You can also review Consumer Reports and other unbiased, third-party reviews to choose a model that has been performing well.

Price

New cars generally cost more than used cars. To make the purchase more attractive, the dealer may also offer new car financing at a lower interest rate, which can reduce the amount of interest you pay over the life of the loan. Some dealers even offer a zero-interest loan for new cars.

Although you won't find zero-interest loans for used cars, you can still find good financing options through your local bank or credit union.

Note

Your options may be determined by whether or not you qualify for a loan or if you'll need to pay in cash. It may be easier to save up the cash to buy a used car since they tend to cost less.

Insurance

Depending on the model, your insurance rates may be lower on a used car than on a new one. One reason is that it doesn't cost as much to replace an older model as it does to replace a brand-new one.

If you are in your early twenties and paying high insurance rates because of your age, you may be able to save money by buying and insuring a used car instead of a new one.

Technology

New cars will have the latest technology, which will mean that you may find cars with better gas mileage and lower emissions. More hybrid options are available as well, which can reduce the amount you spend on transportation each month. Plus, improved technology can make it easier to connect your smartphone, listen to music, or find your way with GPS.

Depreciation

It is important to realize that buying a car is not an investment. Cars are assets that depreciate over time. When you buy a new car, it loses value as soon as you drive it off the lot.

Note

A new car takes its biggest depreciation hit in the first two to three years.

One advantage of buying a used car is that you let someone else—the previous owner—take the biggest depreciation hit on the car. By buying a used car and maintaining it well, you may be able to recoup a great deal of your costs when it comes time to sell the car.

Which Is Right for You?

If you're more concerned with the latest technology than you are with price, a new car may be the choice for you. And if you prefer to drive a car that's still under warranty, a new car also makes more sense. One exception is if you choose a certified pre-owned car that has a warranty.

If you prioritize a low price and good value, buying a used car may be the better bet.

No matter what you decide, you should either pay cash for the car or make sure that you can afford the payments if you finance. One good rule of thumb is that you should be able to pay the car off completely within three years. If you cannot afford the payments at that rate, you most likely cannot afford the car.

The Bottom Line

Do your research, and make sure that the model you are considering has good reviews and is reliable. If you know little or nothing about cars, then you should have a trusted mechanic look over the car for you, particularly if it is used.

Make sure you shop around for the best loan if you are borrowing money to purchase your car, and don't be afraid to negotiate the best price possible for your car.

Frequently Asked Questions (FAQs)

Is a 10-year-old used car too old to buy?

That depends on the make and model of the car, along with other factors such as mileage. If you can swing it, however, try to find a car that's at least two years old. Cars depreciate by a third of what they cost new after just 18 months. Buying cars that are around five years old can be an affordable option, because they are typically still in good condition, have already taken a big hit in their depreciation, and should have well under 100,000 miles on them.

How many miles should a used car have?

A used car should have around 12,000 miles per year on it, and no more than 15,000 miles per year.

How long does a warranty last on a new car?

The average new car has a three-year or 36,000 mile warranty. A powertrain warranty is usually five years or 60,000 miles.

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