Q: I’m ready to give our old Hyundai to my college-aged daughter, which means I’m in the market for a new car. With money tight, can I get away with a used car? Or should I pay up for a newer, presumably better set of wheels? — T. Shahood, Nashua, N.H.
A: It really depends. The new car likely has a better warranty, fewer problems, and should prove a more durable option years down the road.
Then again, Cars.com reports that a new car loses 40% of its value within three years. So the resale value of a new car isn’t that strong.
Let’s play the “pros vs. cons” game and see what options might be best for you. A quick note: we’re only going to focus on the financial end of the car purchase. If you do opt for a used car, take it to a trusted mechanic for a thorough check-up beforehand.
Price. Used cars cost much less than newer models. According to the Comerica Auto Affordability Index, a new car today averages about $27,958 — that’s up 6% from 2009. But Cars.com says the average price for a used car is only $8,244. Advantage — it’s close, and you want to buy quality, but paying around $8,000 versus $28,000 gives used cars the nod here.
Price depreciation. The original owner of a new car absorbs most of the price drop in terms of a car’s value. By the fourth year of an auto’s life, the depreciation slows down. Advantage = Used car.
Financing. Banks have been loath to lend to individuals for a few years now. But one area where it’s actually possible to get a good loan deal is in the new car market. That’s because car makers have been particularly aggressive about making sure their customers have a path to new car financing. Of course, you can finance a used car almost as easily. Right now, BankingMyWay’s Weekly Auto Rate Tracker puts the average four-year new car loan rate at 5.694%. BankingMyWay’s average rate on a four-year used car loan is a slightly higher 6.319%. Advantage: New car — it’s a lower rate and, after all, you’re unlikely to find a promotional 0% rate on a used car.