Buying your first car can be a daunting task but now that you’re an adult and understand your pay cheque, you probably want to buy yourself a car. Hopefully you planned your budget accordingly! Buying a car is often one of the first big purchases people make. Lots of high school students save up a few grand and buy an old clunker to escape whenever they want.
Don’t write off buying used because you “can” afford new
I don’t know your financial situation but if you’re still in school or freshly out of school, or still have student loans you might want to go the used car route. Used cars don’t get enough credit as a possible money saving device. Used cars allow you to avoid immediately losing 11% of the purchase price after driving it off the lot. This basically means if you buy a car with a 10% or less down payment, you immediately own no equity. It’s basically like throwing away 10% of the purchase price. Here’s an infographic from Edmunds.com(They’re car people)
Source: How Fast Does A New Car Lose Value
This is all of course based on average driving. Low mileage cars will be worth more, higher mileage worth less. Then of course the condition of them matters, if you don’t look after it and keep up on the maintenance the value drops even faster.
The Pros are obvious of a used car but what are the cons?
Well along with being cheaper, used cars are older and their history can be unknown. Unless you know the owner of the car you’ll have to rely on 3rd verifications. CarProof is a great source that many dealerships will provide you with. It’s essentially a service that tracks the insurance history of a vehicle. This will tell you if it’s had an insurance claim and a brief description with the estimated cost of damage. It also tells you when it was registered and other minor details.
Another downside to buying used is a chance it doesn’t have a warranty. There’s plenty of dealer programs out there that do offer warranties on their models. There’s also third party warranty offers that you’ll most likely get from the dealership for models that aren’t theirs. These can be worth it but you’ll want to go through them in great detail. Make sure you know everything that’s included because like everything else, some sound too good to be true and they usually are.
Financing costs are usually a lot higher on used cars compared to new. Dealerships don’t usually give the really low interest rates like 0% or 0.9% that is often found on new cars these days. Instead you’re going to be paying interest up around the 3-5% range. This of course depends on your credit, financing terms, and of course where you’re getting the loan.
So why would I ever consider a new car?
Because who doesn’t love that new car smell? Am I right? I have no idea what that new car smell is to be honest. I’ve never bought a new car and never have I noticed a smell when test driving new ones. What’s up with that phrase anyway?
Ok so new cars aren’t just an immediate depreciating asset. They definitely have some upsides. New cars come with pretty solid warranties. The warranties usually cover in the range of 75,000 to 150,000km or 5-7 years, whichever comes first. Not to mention you might get free oil changes and possibly minor maintenance during this period. Things like free oil changes and tire rotations are not out of the ordinary with a lot of dealerships.
You’re also going to get a better financing rate for a new vehicle purchase. As mentioned above new cars often come with <1% financing, which is almost like free money! They may of course factor that low financing into the purchase price or it could be just part of a special dealer incentive to move inventory. Either way, you may be able to offset some of the depreciation with such a low rate when you compare to buying used.
On top of the above pros to buying new, you have a better chance at getting a more reliable vehicle as well. Provided the vehicle you’re buying isn’t the first year of a redesigned generation they should break down less and be easier to maintain. I’d recommend looking into studies that show the most reliable brands before jumping into something to make sure you’re getting the best value for your money.
So when buying your first car is new or used better?
Ultimately, that’s a personal preference, but both have their pros and cons. The used vehicle is cheaper, but may come with some minor issues you wouldn’t identify on a test drive. The new vehicle will depreciate the moment you drive it off the lot. The bottom line is both choices depreciate and both get you from point A to point B. It’s just your own decision on whether or not you want to stretch your finances for the new model and maybe a little more peace of mind or stick with a used vehicle and save some money.
Personally, I stick with buying used. Cars over the last decade have been extremely reliable and you can save a lot of money to get you jump started on other financial goals.
How to actually purchase the vehicle?
Once you know whether you want to purchase new or used and the model of vehicle the rest is pretty easy. After that you can visit the dealer and start your shopping. Once you’ve decided on the car the dealer will walk you through the process. The dealership will offer you financing through their preferred bank(or loan shark depending how shady of an establishment you’re shopping). They’ll also give you a few days to arrange for insurance. The few days to arrange finance and insurance is the most crucial, make sure you shop around for as good of a rate as you can get.