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Need to get or replace a car? Read on to see how to decide between a new and used one.
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You may be at a point where you need to buy a car — either for the first time or to replace an older vehicle that’s no longer running as it should be. And if so, you have a choice. You could buy a new car, or save some money by buying a used car.
As of March 2023, new car prices were up 6.1% year over year, according to that month’s Consumer Price Index. Used car prices, on the other hand, were down 11.2%.
Of course, the upside of buying a new car is getting neat features, having a vehicle in prime condition, and not needing to worry about major repairs during your first few years on the road. But should you spring for a new car right now? Ask yourself these questions to find out.
1. What car payment can I afford?
A good 15.7% of consumers who financed a new vehicle during the final quarter of 2022 took on a monthly car payment of $1,000 or more, according to Edmunds. Based on today’s car prices and borrowing rates for auto loans, you might easily be looking at a monthly payment that high if you opt for a new vehicle.
You’ll need to take a deep dive into your budget and make sure that sort of payment is affordable. If not, a used car may be a better bet, since it will likely result in smaller monthly car payments.
2. How much do I drive?
If you can afford the cost of a new car, you may decide to treat yourself to one if a car is something you use on a regular daily basis. But if you mostly work from home and only take a car out for occasional trips or errands, then it may not be worth it to spend the money on a new vehicle when a used one will suffice.
3. How will this impact my insurance costs?
You might assume that buying a used car will result in higher auto insurance premiums because that car might not be in as good shape as a new one. But actually, a big factor that goes into calculating the cost of auto insurance is what your car and its components are worth. Since a new car is apt to be worth more than a used one, buying new could mean spending more to insure your vehicle.
Also, a perk of buying a new car is getting updated features. However, some of those features might cost more to replace if they’re damaged. So that, too, will impact the amount of money you’re quoted for car insurance.
What’s the right call?
It’s easy to see why buying a new car might appeal to you more so than a used one. But before you make the call, run the numbers to see how a new car purchase will affect your finances. You may decide that while you’d prefer to drive around town in a new vehicle, you’re willing to settle for a used one because it makes the most financial sense.
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