Buying a used car instead of a new one is a great way to save money. The main reason is that someone else takes the big depreciation hit for buying a new car when they drive it off the lot. K&S Car Wash suggests you may want to consider waiting a few years for the depreciation curve to even out, which can save you thousands of dollars. If you buy a vehicle with solid reliability data and low ownership costs, you can save even more during the time you own it. The other way you can get more for your money with a used car is by getting options you might not be able to afford on a new car.
Sometimes these options are more desirable and cost-effective than options on a new car. Sometimes when vehicles move to a new generation, the manufacturer discontinues certain trims, paint colors, layouts and even engines. If these are features you want, then you can save money and get a vehicle that fits you better by buying used.
Decide What You Can Spend
When you start shopping for a car, it’s important to decide right away what you can spend. Having a budget enables you to figure out how old a vehicle you need to look at. However, it’s important to look at many factors when deciding on a vehicle. An older vehicle will cost less upfront, but it may cost more in the future with repairs. A lightly used vehicle that is around five years old might cost a bit more, but it may cost less overall when you factor in ownership costs.
While setting your budget, it’s important to investigate the vehicle’s reliability predictions, cost of ownership history and any detailed common problems. The great thing about used vehicles is that there is usually a wealth of information online about common problems and issues with certain vehicles. You can find these on repair sites and dedicated websites for some vehicles. For example, Odyclub is dedicated to the Honda Odyssey minivan.
Finding The Right Car
There is a bit more legwork involved in buying a used car versus new. When you buy new, you only must find the vehicle that fits your needs and doesn’t break your budget. With a used car, you’ll need to consider the mileage, the history and whether it’s been in any accidents. However, the payoff is potentially getting more for your money when you can move up to better trims and options for less. High-level trims and a dizzying area of options don’t command as much money on a used car as they do for a new car.
Once a vehicle is around five years old, the trim packages don’t give nearly as much weight to its value. The main items that bring up a used car’s price are options like a bigger engine and/or four-wheel drive. These options can also raise your insurance rates, so consider carefully if you really need a powerful engine or four-wheel drive on your new vehicle.
Used Cars Give You More Options
Another reason why used cars make more sense is due to the popularity of leasing. People lease cars and often choose well-equipped vehicles to keep for a few years. When they come off lease, they typically do not have high mileage and have been well-maintained. The glut of vehicles coming off leases also lowers the prices overall. Leasing is now around 30 percent of all new vehicle sales in the U.S.
Buying a used car off lease can save you about $14,000 on average vs. buying a new car. In one example, a Florida buyer was able to get an Audi A4 that was three years old with 46,000 miles on it. The car was certified by Audi and cost $16,000 less than the new version. Although the older Audi did not come with some of the new technology features, some of these features are easily added through aftermarket parts. When you save a ton of money on buying used, you have extra budget room to do your own customizations, which can cost a lot less than getting them in a brand-new car.
Less Risk for Underwater Financing
One of the big risks in buying a new car is ending up underwater in your financing. This happens when the car is worth less than the money owed on it. Because of the depreciation hit a new car takes as soon as it leaves the lot, the risk of underwater financing is bigger than you might think. The risk can be devastating if the new car gets into an accident or stolen while you owe more money than its value. This leads many buyers to purchase gap insurance to keep this from happening.
Gap insurance covers any underwater money on your loan. For example, if you owe $27,000 on your loan, but your new car is now worth only $23,000, you will need gap insurance to cover that $4,000 or risk paying out of pocket if something happens to the car. Buying gap insurance is yet another expense that raises your insurance premiums.
Get a Better or Bigger Car
Buying used opens the possibility to get a larger, more powerful, or more luxurious car versus buying new. You might be able to afford a used Lexus with your current budget, but if you bought new, you might have to settle for a base model Toyota. Perhaps you really need something with the room of a Honda Accord, but your current budget only allows for the price of a new Honda Civic. Maybe you want a sports car but can only afford the smaller base engine in a new vehicle. There are multiple ways you can step up to a different vehicle by buying used.
It’s Easy to Get a Used Car’s History
One of the hardest parts of buying used cars is knowing its history. At least, it used to be. Now you can use services like Carfax and Auto check to find out the title history of a vehicle as well as maintenance records, number of owners and collision information. Getting a history report can help you eliminate problematic vehicles from your search.
Buying used also gives you access to reliability reports that span more than a few years. When you buy brand new vehicles, you don’t have any proven data that shows how well the vehicle holds up. You also can’t go through ownership forums and find out how other owners have fared with the car. However, used cars put all this information at your fingertips. You can find out which vehicles are the least problematic to own, whether in the long or short run.
Look For Used Cars Where the New Model Has Just Been Redesigned
Vehicle generations usually last between five and seven years, although some may last longer or shorter than this. When a new generation happens, the new model is completely redesigned. This usually means that the previous generation takes a big dip in value, which also means better prices for you, the buyer. A new generation of a particular model no longer has five years of reliability data because it’s just been redesigned from the ground up.
Used Cars Depreciate More Slowly
Cars depreciate the most within the first two to three years of their life. After that, their value goes down a lot more slowly. When you buy a used car of four or five years old, you’re letting the first owner absorb the biggest brunt of depreciation. By the end of a car’s first year, it’s likely lost between 20 and 30 percent of its value. How much further it goes down depends a lot on the vehicle in question.
An example of average depreciation starts with a new car worth $25,000 today. In one year, that car is likely to be worth about $18,750. In two years, the car could be down as far as $15,375. After three years, it might be worth about $12,761. By the end of the fourth year, it’s likely to be worth about $10,719.
Finally, at the end of five years, you’re looking at a car that’s worth $9,112. At that point, the car has lost over $10,000 worth of value. But you can see how the car lost only about $1,000 between the fourth and fifth years. This is typical for used cars when they reach the four and five-year mark.
K&S Car Wash highlights the wealth of options and value when purchasing a used car instead of a new one. It can allow you to step up to a more luxurious or roomy vehicle while letting the previous owner absorb the big deprecation costs.