When buying a vehicle, price, styling, and reliability are all very high on the list of things people want. One of the best ways to guarantee all of these things is by purchasing a late-model used car. One that is only a few years old provides many of the same advantages as a new automobile. At the same time, you can also save yourself a great deal of money. Here are just a few ways in which used cars can help you get the most for your money.
You’ve probably heard that a new car will depreciate a few thousand dollars as soon as you drive it off the lot. That’s one factor that hasn’t changed over the years. You begin losing money as soon as you sign the paperwork, and you will take a big hit during the first few months. Some experts believe that vehicles depreciate between 20% and 30% during the first year.
When a car is 3 years old, it has already depreciated up to 50%. By the time it is 5 years old, it will have depreciated by around 60% or so. After that, automobiles depreciate at a much slower rate, so you will not feel the effects quite so much.
A vehicle that is only 3 years old will have already experienced most of its depreciation. At the same time, it probably has very few miles on it. Accordingly, you can snag a like-new model and save a significant amount off the cost.
U.S. News reports on statistics from the Kelley Blue Book, which show that the average cost of a new car is now more than $37,000. The average price of a used vehicle, on the other hand, is only around $20,000. So, you could save an average of $17,000 just by choosing a pre-owned car rather than a new one.
More Affordable Payments
When financing a used car, a good rule of thumb is that your payment should be no more than 20% of your monthly take-home pay. You should also set aside money in your budget for fuel, maintenance, and insurance. When you calculate all these costs, buying a new car is financially out of reach for a number of people.
New car interest rates tend to be lower than the ones offered for used vehicles. Even so, that does not amount to a higher payment in most cases. The lower sales price more than makes up for the difference. In addition, banks are offering longer terms for used automobiles these days. In 2018, the most common length of a used car loan was 72 months.
To reduce your car payment, Investopedia advises people to avoid brand-new cars and purchase used models instead. They claim that by doing so, you can save an average of $136 per month in the way of payments.
Avoid Being Underwater
The fact that your new car begins depreciating right away leads to many people being upside down on their loans. This is something that is less likely to happen if you purchase a used vehicle. If you are upside down, it will probably be far less than if you had financed a brand-new automobile instead.
Being upside down on your loan can result in other problems in the event your car is stolen or totaled in an accident. In those instances, you could wind up still making payments even though you no longer have your vehicle.
Lower Taxes on Used Cars
You will need to pay sales tax on your vehicle regardless of whether it is a new or used model. The amount of sales tax you pay is directly tied to the selling price. So naturally, that means that you will owe less money in taxes if your purchase price is also lower.
Coming up with the money for sales tax is often a problem when buying a new vehicle. Consequently, many people wind up financing their sales tax as well. Your ability to do so will depend on the Loan to Value (LTV) assigned by your lender. Of course, this only increases the amount of your loan and makes it more likely that you will have negative equity.
Costs Less to Insure
Car insurance rates are directly tied to the cost of your vehicle. After all, an insurance company must consider how much it would cost to replace the vehicle if it were totaled in an accident. Accordingly, you will pay much more in monthly premiums if you buy a brand-new automobile.
New Automobiles Require More Types of Coverage
When buying a new automobile, you could require more types of coverage. For example, lenders will almost always insist on you having comprehensive and collision coverage if you are financing your car. This is something you can often get away with if you are paying cash or taking out a smaller personal loan.
New car buyers may desire gap insurance as well. Gap insurance pays the difference between the amount you owe and the car’s value in the event it is totaled in an accident. This means you actually wind up paying more just because you are already upside down on your loan.
Used Cars Are Often Just as Reliable
One reason people use to justify the cost of a new car is that they are inherently more reliable. The idea behind this thought process is that the additional money they spend will help them avoid costly repairs down the road. In fact, concerns about reliability and auto repairs is a leading reason for consumers choosing new models instead of used ones. Nearly half (46%) claimed they did not want the hassle of repairing or maintaining a used vehicle.
The idea that new cars are more reliable may have been true at one point. However, that’s not necessarily the case these days. According to Consumer Reports, some new cars are less reliable than used models, particularly during their first year of production. Jake Fisher, Consumer Reports’ director of auto testing, noted that “It’s simply wrong to assume that buying a new car is going to mean the end to reliability problems.”
It Is Easy to Research Used Models
There is more information than ever about different makes and models these days. Consequently, by doing a little research, you can better predict which models are likely to experience reliability problems. In that way, you can better choose a vehicle that will be every bit as dependable as a brand-new model would be.
These days, providers such as AutoCheck and CarFax can provide you with a full vehicle history. A history report can give you information about the title history, odometer reading, potential accidents, and more. This, too, makes it easy to research vehicles so that you are less likely to end up with a lemon. Vehicle reports cost very little to obtain. In some cases, they may even be available for free.
You Can Still Have a Warranty
Over half of new car buyers claim they were interested in a warranty. It seems that many people think that the only way to obtain a warranty is to obtain a brand-new vehicle. However, that’s not necessarily always the case as many used automobiles still have most of their factory warranty remaining. In most cases, the factory warranty is transferable to the new owner.
Purchasing an Extended Vehicle Warranty
What happens if your vehicle is just outside the manufacturer’s age or mileage requirements? In that case, you can often purchase an extended warranty if you are truly concerned about car repairs. Even so, buying one may not always be necessary.
Credit Karma advises consumers to compare the cost of the warranty against the price of some of the vehicle’s most common repairs. They then suggest reading the terms very carefully to determine exactly what the warranty covers. In doing your research, you may discover that a used car warranty isn’t really needed after all. Instead, you may decide to set aside that cash to cover any future repairs should they indeed become necessary.
Used Automobiles: The Best Deal for Your Money
A lower sales price, along with reduced taxes and insurance rates, means that you can save a bundle by purchasing a pre-owned vehicle. Accordingly, they are often a better value for your money. This is especially true when you consider that they are often just as reliable as new models.
If you want dependability but feel that a new vehicle is out of your reach, consider one that is just a few years old instead. In doing so, you can enjoy many of the benefits of a new car without getting in over your head financially.