If you are thinking of purchasing a car, one of the key questions you may be asking yourself is whether you should choose a brand-new vehicle or a used one. There are pros and cons to both of these options, and it is important that you put plenty of thought into it before you make up your mind.
Some people approach buying a car as if they are investing in an asset. Generally, purchasing a car is not an investment. A car is generally considered a depreciating asset and picking the right car that depreciates less or has a better resale value can become an important aspect amongst a range of criteria when deciding to buy a new or used car. Naturally, there are some specialty, rare, exotic, sports and classic cars that throw an exception to this rule and are an investment and rise in value. That is another topic of discussion.
For those who decide they want to look at a brand-new vehicle, it is important to take some key factors into consideration before you make your final choice. Your decision can affect everything from the level of protection you have for your vehicle to the amount you will pay both upfront and in terms of running costs. This is why you should not rush into a decision if you are unsure whether to choose a new vehicle over a used one.
Questions to Ask Yourself Before Buying A Car
In order to ensure you are making the right decision with regard to whether you should purchase a brand-new car rather than a used one, you should ask yourself the following questions.
1. How Experienced a Driver Am I?
One thing you need to think about is how much experience you have as a driver and how confident you are on the road. For instance, if you are a new driver who has not long passed their test and has little experience on the road, you may want to choose a used vehicle rather than a new one. This is because newer drivers are statistically more likely to be involved in an accident, and while it may not be a serious one it can still cause a lot of damage to the vehicle. So, you have to consider whether you want to risk gaining your experience as a new driver in a brand-new high-value vehicle or an older and cheaper used car..
2. Can I Afford to Buy a New Vehicle?
Finances will obviously come into the equation, and you need to think about whether you can afford to purchase a brand-new car rather than a used one. In addition, you have to consider where you will get the money to make your purchase. You may already have savings, or you may be looking at a car loan or finance from a dealership.
Just remember, the cost of buying a new vehicle will be far higher than buying a used one, as used vehicles will already have gone through depreciation.
In addition, the extra one off associated purchase costs of a new car can include dealer delivery costs, luxury car tax (LCT) that applies to cars purchased above $67,525 and an even higher state tax in Victoria for luxury passenger cars valued over $100,000. These costs will not be incurred again if you buy a used car in the private of dealer market.
3. Can I Deal with the Depreciation?
On the subject of depreciation, you must think about whether you are okay to deal with the hefty depreciation you will experience when buying a new car. As soon as you drive the vehicle off the dealership forecourt, the value will drop considerably. Unfortunately, this is a cross that purchases of new vehicles have to bear. So, if you are happy to take the hit, then you can go for a new car but if you don’t want to be the one that suffers the losses, you may want to consider a relatively young but used vehicle.
The high level of depreciation on a car takes the hardest hit on resale values in the first 2-3 years of ownership. So if you combine your new car purchase with a finance option and sell it well before the end of your finance or lease term the shortfall between the selling price and the finance payout can leave a significant gap and shortfall. The market value may be well below the outstanding payout amount on the loan. This occurs because most finance leases or loans are structured with most of your early payments pay off interest rather than any principal loan amounts.
4. What Will Insurance Costs Be?
You also have to think about the ongoing costs associated with buying a new vehicle, and one of these costs is your car insurance. The cost of insuring a brand-new vehicle can be considerably higher than a used one that is worth far less money. Thieves are far more likely to target new, high-end cars than cars that are older and worth less, and this means you represent a higher risk to the insurance company.
5. Will I be covered by a Factory Warranty?
The advantage of buying a new or demonstrator car is that it will be covered by a full factory warranty and this gives some comfort and certainty in the ownership experience. Manufacture Factory Warranties vary from 3, 5 & 7 years with many offering unlimited kilometres during this period.
However, some manufacturers like Mitsubishi and Nissan still only offer factory warranties in some models with a maximum of 100,000kms. Kia leads with offering a 7 year unlimited kilometre warranty. Other key car manufacturers like Toyota, Mazda & Volkswagen have since the beginning of 2019 moved from 3 years and are now offering 5 year warranties. Many prestige brands like Audi, BMW, Mercedes- Benz, Jaguar, Porsche and Volvo still offer only offer customers 3 year warranties on new cars.
Buying a used car 2-3 years old or more means you are likely to have minimal manufactures warranty or none at all. This increases the risk of any major unexpected flaws or repairs not being covered. The risk of major costly repairs increase with a cars age and the kilometres driven even . Even well looked after and serviced cars can have costly repairs purely from wear and tear.
If you travel and clock up very high kilometres annually, having a car with a significant period of factory warranty with unlimited kilometres can make purchasing a new or demo car a very sound and attractive financial decision and preferable to buying a much older used car.
Get Expert Advice
If you are unsure whether you opt for a new or used car, it is well worth consulting with an expert. Get in touch with the team at My Next Car Buying Advocacy to get professional advice. Whether you are looking for a new or used car, your personal car buying agent will be able to help you make sure you end up with the right car at the right price.