True enough, a new car usually comes with new specifications, offers better ride comfort, and probably requires fewer maintenance visits. However, the downsides are usually never discussed. Nevertheless, you need to consider them carefully before investing thousands of dollars in a new car.
When Used Cars Can Offer You More Value Than New Cars
Let us do a quick, back-of-the-envelope calculation to show why we think a used car can be a better choice sometimes. For that, we would need to make a few assumptions:
- You buy your first car at the age of 24.
- You buy your last car at the age of 60.
- You change cars every three years on an average.
Say, you spend US$30,000 for a new car. Then you would have had spent US$390,000 in your lifetime on cars. Now, let’s assume that you buy used cars worth S$15,000 each instead. Your total cost will be US$195,000.
This means you can save a whopping S$195,000 on cars throughout your lifetime!
While actual calculations may not be so simplistic, you can still benefit from the purchase of a used vehicle under the following situations:
1. Trying to Avoid Depreciation
It is common knowledge that a new car starts to devalue as soon as you drive it out of the showroom. A car worth S$30,000 may depreciate by as much as $15,000 or more within the first two years, depending on the brand, the condition of the vehicle, and other factors. That means that it will lose almost 50% of the value within 2 to 3 years.
If you buy a 2-3-year-old car for $15,000, you may be able to sell it off for $12,000 after two years. That way, you’ll lose only 20% of the car’s original price.
You could use those savings on maintenance or modifications. Isn’t that cool?
2. Trying to Move Up to a Higher Class
If you’re contemplating the purchase of an Acura RLX but the price tag is the only thing that is stopping you, worry not!
Instead of going for the latest model, settle for an existing model that is just two to three years old. You may be able to get an RLX for the price of a new Honda Accord.
You may also stand to benefit if you’re looking to upgrade from your hatchback to an SUV. Instead of driving your old Ford Focus even after three years or upgrading to a slightly bigger car, you can aim straight for a used Ford Explorer which may be available for the price of a new hatchback.
3. Looking to Save on Insurance Premiums
Paying premiums on auto insurance for a new car could put your finances under serious strain. Most insurers charge a much lower premium on used cars.
The savings could be significant, especially if you own an old SUV, sedan or sports car, and want to keep it in your possession for a few years. Again, the savings can be used to offset the slightly higher costs of maintenance.
4. Looking to Save on Registration
Registering a used car in the US costs much less than registering a new automobile. Although it’s a one-time cost, it is substantial considering that you would have to pay a registration fee, a license fee, an air-quality control fee, highway emergency fee, a DUI deterrence fee, and more.
Each of the components is much smaller in value when you register a used vehicle.
5. Looking for an Extended Warranty
One of the biggest attractions of owning a new car is that most new cars in the US come with a warranty of 3 years/36,000 miles, or sometimes even 4 years/50,000 miles.
However, some certified used cars also come with extended warranties which means that you can enjoy one of the most important features that make a new car stand out, without paying a premium on the purchase.
In addition, certified pre-owned cars, having been put through rigorous tests and inspections, are usually in a better condition and hence require lower maintenance visits. Therefore, you won’t have to worry about frequent garage visits, too.
6. Looking to Save on Sales Tax
If you stay in one of the 38 states where both local and state taxes are levied, you can benefit from the lower sales taxes applicable to used cars. Reports show that Louisiana, Tennessee, and Arkansas are amongst the states with the highest rates of dual sales taxation regime.
Since the purchase value of a new car is usually much higher than a used vehicle, you can save a lot on sales tax in the states mentioned above.
Things to Keep in Mind While Buying a Used Car
While buying an old passenger vehicle has its perks, it’s not all hunky-dory. Ensure that:
- The car is in good condition. If not, the incremental maintenance expenses will cancel out the savings you have made from the lower price of the car.
- The mileage is relatively good. The fuel efficiency of a car can take a tumble as it grows older. Fuel expenses can become an issue with old cars.
- The safety features and creature comforts available are satisfactory. You may have to sacrifice the latest specs for a lower price.
- The components are easily available in the market.
- It complies with the latest emission norms.
Buying a used car could be understandably tricky. However, if you opt for a certified used car, even for a marginally higher price, you may be able to avoid future complications.