New versus used car: pros and cons?
March 17, 2015 9:33 AM   Subscribe

What are the key variables to consider when deciding whether to buy a new versus a used car?

I've saved enough money to finally purchase my first car. Should I buy new or used? I've been perusing the broader internet for deals, advice on models, how to buy, etc. for the past couple months. But I noticed this basic question of whether to buy new vs. used, and how to think about that decision, hasn't been directly tackled yet on AskMe.

I live in California and am a PhD student in the bay area. I gave myself a preliminary budget of ~$5,000 with the aim of getting a ~10 year old used car. I found cars easily enough in this price range but noticed there was usually a catch (or many): lots of mileage, too many unknowns, finicky models, creepy sellers, in faraway towns, etc.

I also began to notice more recent, nicer models getting sold in the $7,000-10,000+ range, so I expanded my search budget. Once on this slippery slope of spending, I realized that I had enough savings to simply buy a new car outright and that I had somewhat arbitrarily and perhaps unnecessarily limited my budget and my searching to used cars. If I'm willing to spend $11,000 on a 5-year old car, why not $16,000 for a brand new one with no miles, manufacturer warranty, peace of mind, longer life, better resale potential, and possibly other perks I haven't anticipated?

I've searched online advice, and a main concern is the depreciation in the car's value once it becomes "used." Does that mean--if one can afford it--that a 1-2 year old car certified by the manufacturer would be preferable (even ideal?) compared to a new car so somebody else eats the depreciation hit? Are new cars just for suckers, or are there good reasons why folks choose them over used cars? Again, I have the funds to go in either direction, but am struggling to think through the trade-offs.

Models I'm considering: I am pumped about the Honda Fit (no. 1 choice), but have also considered the Nissan Sentra, Mazda 3, and a few others (VW Golf, Jetta, Passat; some Subarus; the Civic). I drive manual and would like to get a stick shift. I do a lot of outdoor activities, and plan to do occasional road trips to Canada. The Fit gets high marks in my mind for its combination of storage space, mileage, comfort, reliability and being pretty charming.
posted by eagle-bear to Travel & Transportation (24 answers total) 18 users marked this as a favorite
This is a pretty good writeup that covers a lot of your questions.
posted by craven_morhead at 9:45 AM on March 17, 2015 [2 favorites]

General wisdom says buy the 1-2 year old car so someone else takes the depreciation hit, but in reality I've found that in some markets, the new models can be around the same price (Subaru and Honda, I'm looking at you) AND the incentives are better. There's really no one-size-fits-all answer. If you can find a new car that is approximately the same price as the 1-2 year old model (and take interest charges into account -- the slightly more expensive new car with 0% financing might be cheaper than the slightly less expensive used car with a higher interest rate) then yes, of course you should buy it.
posted by rabbitrabbit at 9:45 AM on March 17, 2015 [4 favorites]

And I just noticed you're paying cash. If you can get 0% financing on a new car, and then put that lump sum into something that earns interest instead, you'd be better off than paying cash upfront.
posted by rabbitrabbit at 9:47 AM on March 17, 2015 [2 favorites]

I bought a new car once. It was great. Had 6 miles on it. I took care of it meticulously. I knew everything about it, its history, and what needed to be done. 10 years later it looked, ran, and felt brand new to me and whomever rode in it with me. I got it new for the 0% financing. No downpayment. Kept up on payments, etc.

Next, I looked at used cars. BUT, they were *slightly* more than two or three years old at the very most. I will now only buy used cars like this.

Why? Because I was able to get a ~$30,000 car for ~$12,000 that was three years old. Still looked and drove like a brand new car. Wasn't 0% interest on the loan, though, but I did have a huge downpayment.

Downside includes that I am still finding weird things the previous owner did even though I have had the car for 6 years, but so be it. I can handle it.

I never, ever though I would ever even touch a car that was originally in the $30k range, and I got it for third the price.

As far as very used cars? I tried it once. Spent $6,000 on a car that lasted 6 weeks. No warranty of course. Very expensive two months of my life in that regard.

So, my whole point here is that I suggest the "slightly used" market for a car. But that will very with your region and time of year and used car market at the time (which changes greatly, by the way). Some "slightly used" cars with interest on the loan will cost you MORE than the same car, brand new, 0% interest. Other times, you can get a car at 1/3 the price like I did. Do the numbers and such, and your mileage may vary.
posted by TinWhistle at 9:50 AM on March 17, 2015 [1 favorite]

I would get the newest used car you can afford to pay cash for. You'd save all around--on initial price and on interest.
posted by fivesavagepalms at 9:56 AM on March 17, 2015 [1 favorite]

I live in California and am a PhD student in the bay area.

Personally, I'd go for a new/newish car. There is something to be said for a fixed monthly payment and a warranty when you are not making a ton of money or have a ton of time available.

You can make a good argument for not having a car payment, but at your price point, that carries a non-zero risk. You have to figure out how much of a pain a broken car or sudden repair expenses might be.

You might also consider leasing. That can get you into a newer car for less monthly money. There are caveats, but it's worth considering. I leased a new RAV4 through college, and it was such a joy to have a reliable car I didn't have to worry about.
posted by Pogo_Fuzzybutt at 10:06 AM on March 17, 2015

I'd go for new for this category of car. There's a lot of demand for a 2 year old fit/civic/corolla which pushes prices to within ~3k of new. If you figure that the used models have used tires, brakes, shocks, etc, then the ~3k is actually worth ~1.5k of new, because you'll need to replace that stuff 2 years sooner in the used car. If the new model is a new generation (which is the case with the fit, the corolla, and the civic), then upgrades in fuel mileage may make up a good bit of that ~1.5k over a few years, making the whole thing much closer to a wash. This only goes for those high-demand economy cars. A BMW or Porsche or SUV is maybe different story.
posted by everythings_interrelated at 10:11 AM on March 17, 2015 [2 favorites]

Another plus for the new car is you can specify exactly the options you want, even down to things like exterior and interior colors. And while not really important in the sense of getting you where you need to go, there is a certain value in being aesthetically happy with your daily transportation.
posted by Rock Steady at 10:24 AM on March 17, 2015

I am frugal and would love to get a good used car at a reasonable price. But I feel like the cars I looked at were so expensive compared to a new, last-years-model car. For a few thousand dollars more I was getting a brand new car with a great warranty and less worry about the cars history and better resale potential.
posted by beccaj at 10:24 AM on March 17, 2015 [1 favorite]

Getting a 1-2 year old lightly used car is the conventional wisdom. However, when I was buying a car a few years ago there flat-out weren't any used Fit's available, they were that popular. You might need to expand your search to models that are more commonly leased out, especially if you want a manual (which decreases that pool of used cars available to you).
posted by matildatakesovertheworld at 10:37 AM on March 17, 2015

After having a number of lousy used cars, when I got my first good job I bought a brand new one. It wasn't good from a resale/investment point of view, but I really enjoyed having something that was in perfect shape and took good care of it. I'm glad I owned a new car at least once. After that I went to "better used cars" e.g. a Honda certified pre-owned vehicle from the dealer. But that was on a minivan that was still like $27k used* ... for something less pricey like a Fit there's a lot less elasticity in the price and as as other have said, given the demand out there you may just want a new one.

* I like your possible choice of a Honda. My minivan had 43k miles when I got it and is up to 85k or so now and I have had zero problems other than routine maintenance. In contrast the various VWs I had (Passat, Beetle, others) were always at the dealer for something or other :-(

Don't forget to do the math on insurance and maintenance though! On the maintenance front, tires are another reason to go new. If you buy a used one and the tires have a lot of wear, you could have a surprise $300-500 money sink for new tires before you expect it.
posted by freecellwizard at 11:55 AM on March 17, 2015 [1 favorite]

After fifteen years carless, my wife and I just bought a used car. I heavily recommend lightly used. The internet has largely destroyed all the "slimy used car salesmen" problems that used to exist. You can search for very specific things. We bought a used BMW from a dealer for a great deal, and it's still under the original warranty, with the option to buy an extended warranty from the licensed BMW dealer. Another great aspect of this is the dealerships generally won't ever buy bad cars, they only take good condition vehicles for trade ins. Plus, the dealer fixed a couple minor cosmetic issues for us without blinking.

Of course, buyer beware. But the process was remarkably stress- and pressure- free, an I think we did well and highly recommend going this way. Good luck
posted by jeff-o-matic at 11:57 AM on March 17, 2015

I've had a long series of old cars. The newest was about 7 years old when I bought it. My current car is 11 (8 when I bought it). I could afford to buy new without any trouble, but I doubt I ever will.

I can't say any of them have been absolutely trouble-free, although they tend to run for long periods without needing anything more than oil, brakes and tyres. Every two or three years there's some moderately serious mechanical thing that goes wrong and needs fixing, followed by two days of repairs. But, because it's an old car, and because the parts are that much cheaper than equivalent new-car parts, it saves me a great deal of money. If worst comes to worst, I can get an engine that's been totally remanufactured (new pistons, bearings etc.) fitted at my local garage for the equivalent of about $2000. That's worst-case. Most major-ish repairs come in at a couple of hundred.

Whenever I hear friends talking about the cost of having their 2- or 3-year old car fixed by the dealer, I find myself thinking "but you could buy a car for that!".

Nice new cars are nice. I'd probably invest in a newer car if I had to travel regularly for work, and if impressions were important. But what I have serves me well for the 15K miles I drive each year, and I plan to keep it running until it dies completely. In my experience, the point at which a car becomes uneconomical to repair is when it's flying over a cliff in a ball of fire (or, like my previous car, completely bent in a collision).

Over the years I've heard a lot of people say that nearly-new cars are the optimum purchase, but I've never been able to make the numbers come remotely close to adding up. I think people tend to find justification for whatever it is they want to do.
posted by pipeski at 12:35 PM on March 17, 2015

Response by poster: I can feel myself warming up to the idea of buying new / almost-new as I read these comments. This is way different from where I started. The floodgates are open!

To further dimensionalize the question, I was relating it in my mind to recent conversations here regarding poverty-trap like mechanisms, which could be at play in the decision. If I have the capital for a car that will serve me better, longer and more reliably, I wonder if this is preferable to something that is seemingly less costly but in a broader sense more costly.

I also wonder how folks feel about the related question of buying with the aim of eventually reselling versus buying a car to keep 'til death do us part: does this figure into the decision of which direction to go regarding new versus used?
posted by eagle-bear at 12:38 PM on March 17, 2015

Another plus for the new car is you can specify exactly the options you want, even down to things like exterior and interior colors. And while not really important in the sense of getting you where you need to go, there is a certain value in being aesthetically happy with your daily transportation.

This. I got my very first new car of my whole life two years ago, and I loved being able to walk into the dealership and pick out exactly what I wanted. That, and knowing that it's new, to be only taken care of by me, and if it gets messed up at all, well that's on me, too.

My last car, a used one, was a dream, my first used car was a nightmare, both looked the same on paper (2-3 years old, one previous owner, small-ish 4-door sedans), but it was obvious one had been cared for, and the other had not been--it was the lemoniest of lemons.

So if you want to go used, definitely do your research, get the car checked out before you buy it, if possible, and be prepared for a few quirks--even that dream used car had a few oddities about it, but nothing catastrophic, thankfully!

EDIT to respond to the OP update: I plan to keep my car for 10+ years and basically drive it into the ground. If I'm planning to keep it that long, I figure I might has well have something I like, you know? That's also a big reason why I'm happy I went with a new vehicle.
posted by PearlRose at 1:22 PM on March 17, 2015

I think the key variable is how reliable you need the car to be.

A reliable car will be:
- From a well-known, (not necessarily premium) brand
- A simple uncomplicated small engine
- New or newish

Of course that will also be quite a boring car, a FUN car will be quite the opposite. It is worth thinking about this because if you buy a car thats too dull you may suddenly find yourself unable to resist the temptation of trading it in for an Alfa Romeo. What you want to aim for is something that has just enough 'fun factor' that you will be happy to keep it for a few years.
posted by Lanark at 3:32 PM on March 17, 2015

From an economics point of view, a market as large and as liquid as the car market is considered close to "perfect" - as in, all the buyers and sellers have good information as to the qualities of the product being traded (wear and tear, rate of parts replacement and servicing costs) and can thus price the product accurately (depreciation curve over the lifetime). Thus, for any given point on the curve - brand new, slightly used, very used, end of life - the price you pay should be close to a "fair" price and the average person would get fair value no matter what he bought - he should be indifferent to buying one a few years older or younger.

The point of this is to say that you can rest assured there's no inherent "hidden" advantage to buying a new car vs a slightly used car vs an older car that hasn't been already factored in the sale price. What you must do however is take into account that you aren't the "average" person in the market - you have individual needs and preferences. For example, someone who loves tinkering with their car and is mechanically inclined would get more value out of an older car he can maintain himself, while a person who hates even opening the hood or changing a tyre would do best with a brand new car that requires minimal maintenance.

The reason the depreciation curve is very steep in the first 2 years - and why a 1-2 year old car looks like a "steal" - surely the car can't have taken that much physical damage or deterioration in the first 1-2 years! - is that there's a self selection bias at play. Think about it - who buys a brand new car only to sell it within 1-2 years (still within the warranty period)? Perhaps someone who has encountered some persistent problem with the car which the dealer service team can't resolve - their best option is to sell it while it's still within warranty and let someone else deal with it. For example a friend who had their car in the workshop 4 times for transmission issues with the company failing to fix it each time but also denying there was anything really wrong with it... Basically, you don't sell a brand new car unless something has gone really wrong with it that can't be fixed. Of course, not all cars are like this - some people have other reasons for wanting to sell a relatively new car (relocating to other countries) but the risk factors here push the price down steeply on all new cars.

The other thing about it is the new car warranty - it's a form of insurance, where your cost is higher on average than the benefits (the insurance company has to guarantee it makes money) but it limits your individual possible downside. You won't be stuck suddenly needing $3000 for engine repairs or something random, even though on average you're paying an above fair price premium for peace of mind.

Think about it in terms of total lifecycle costs - a $30k car costs say $12k used after 5 years. Say you need a car for 10 years, and cars reach end of life at 10 years. You have the choice of buying a brand new car for $30k and using it for 10 years, or a 5 year old car for $12k and use it for 5 years, sell it for $2k and buy another 5 year old car for $12k... so that's $22k. Factor in stuff like extra maintenance and parts replacement...
posted by xdvesper at 4:19 PM on March 17, 2015 [4 favorites]

Response by poster: xdvesper, that is actually very reassuring to hear laid out like that.

Another thing that's becoming clear to me is that buying new doesn't mean avoiding negotiations with sellers to get a good deal. Is this what people mean when they refer to getting offered better "incentives"? My hope was that buying new would mean simply paying the amount quoted by the manufacturer (plus "destination and handling" fees), but it seems like there is some terrain to be maneuvered here too?
posted by eagle-bear at 5:02 PM on March 17, 2015

A really important point that people allude to above is that the new car depreciation curve has become dramatically more shallow in recent years. Buying new used to be an exercise in vanity or extreme particularity of taste; it's now a reasonable move for all kinds of situations.

Why has the depreciation curve flattened so much?

* People got wise, too wise -- enough people chasing 1-3 year old cars, with (thanks to the Internet) an effectively nationwide market for every used car, and, voila, 1-3 year old cars start to get expensive

* New car production fell off a cliff in 2008 and only recovered very gradually -- the supply of recent- and (now) mid-vintage used cars relative to demand is historically low

* In addition to the national Internet market, there's a thriving global export market for lightly-used cars -- too many 2011 Camrys on the auction lot on Thursday <> cheap Camrys on the used car lots on Sunday, it = a pile of Camrys on the boat to Khazakstan.

* Significantly cheaper financing and warranties for new cars vs. even lightly used cars lowers the total cost of ownership advantage.
posted by MattD at 5:44 PM on March 17, 2015 [2 favorites]

Is this what people mean when they refer to getting offered better "incentives"?

What this means is that dealers offer much better terms on new cars than on used. 0-2% financing or 0 down and cash back deals. On a used car, financing will probably be 5-6% depending, and quite possibly higher.

Some cars that are very popular will not have good incentives - the Tacoma for example, has no incentives from Toyota, but the Tundra has 0% for 48 months, and 500 dollars cash back. On the other hand, the Tacoma holds its value like gold or ammunition - I could sell my truck for just a few thousand less than what I paid for it even though it's 3 years old.
posted by Pogo_Fuzzybutt at 6:16 PM on March 17, 2015

Best answer: I've searched online advice, and a main concern is the depreciation in the car's value once it becomes "used." Does that mean--if one can afford it--that a 1-2 year old car certified by the manufacturer would be preferable (even ideal?) compared to a new car so somebody else eats the depreciation hit?

TL:DR, I am something of an expert on the subject, you've hit the nail the on the head.

I used to sell new cars for a living and my dad has been selling all kinds of cars for over 30 years and this is a question often debated between new and used car salespeople. It's something I've talked about a lot.

You've hit on the crux of why new cars a not a good value. A certified used car is a lot closer to the condition of a new car than the cost would suggest. You still have most of the warranty, there is still basically no wear on the important parts, and you don't have to worry about the first scratch in the paint but it's pretty darn close. If you don't care about color and want the most common options you don't lose anything to the selection of new cars but if you're looking for a rare combination it can be an issue.

The availability of certified used cars basically rules out new cars as a better option.

The real question is, what kind of used car is the best value?

The last time I researched it, the least expensive way to own a car was to buy a really cheap junker and just fix it when it breaks. You end up spending a lot in repairs but then those parts are new and you saved $15k by buying cheap and it usually hard to spend all that fixing a car. But you obviously have to be in a position to deal with the break downs and what dirty, worn condition the inside and outside might be. Even if it ends up being reliable there is often some major maintenance that needs to happen at higher mileages.

There are a lot of VERY reliable cars in great condition that are in the 5-7 year old range and some even a little older but it takes a bit of digging and it helps to be open minded about what you want, even about make/model.

I think that what it basically boils down to is that on the scale from buying brand new to buying a really old car is that you tend to go up in value but you need more expertise (yours and/or the mechanic you hire) and research, are taking more risk, lose some selection, and have to deal with more visible wear unless you get really lucky.

Personally, I wouldn't ever buy a new car unless I'm rich enough that I don't consider $5,000 to be a significant amount of money. But I get that some people value the newness, I guess, of a new car higher than that. It might be that a specific model that just recently got redesigned (so no used examples are for sale yet) is just perfect for you and no other car fits your specific set of needs or absolutely need a specific combination of options and colors and you can't find any used ones that fit the bill. In either case it helps if you plan on owning the car and taking care of it until the heat death of the universe. When you stretch it over 15 or more years, the cost difference between brand new and nearly new shrink a lot. But odds are that something about your circumstances will change and you'll need a different car or be able to afford something much nicer or even just plain be sick of driving the same thing for so long.

A 1-2 two year old lease or rental return will get you the best combination of wide selection, modern design, cosmetic and mechanical condition, risk, and value. It's what I've always bought, what I always plan to buy, and what I tell everyone who asks to buy. It's still new enough that it's a nice, new feeling car and in good enough condition that as long as you maintain it you can drive it basically forever but if you need to sell it and get something new sooner than that, it will still be worth something.

If you are patient and know what you're doing, you can do better with something older with a bit of luck. Or you can get something really old and roll the dice as long as your circumstance allow you to deal with the caveats of that experience.
posted by VTX at 6:31 PM on March 17, 2015 [7 favorites]

Response by poster: I think I'm pretty much gonna do what VTX says.
posted by eagle-bear at 7:14 PM on March 17, 2015

Whenever I hear friends talking about the cost of having their 2- or 3-year old car fixed by the dealer, I find myself thinking "but you could buy a car for that!".


I have never paid more than $3500 up front for a car, and never intend to.

If what you're after is cheap, reliable transport: buy something small and Japanese with a manual transmission after paying a mechanic you trust to check it out thoroughly, then have the same mechanic deal with any issues that are likely to strand you by the side of the road.

Bodywork rust is pretty much the only instant dealbreaker. Anything and everything else can be replaced for well under the difference between the price of a half-decent old car and a relatively rubbish new one.

If you can't achieve dependability for under $6000, including initial purchase costs and all required mechanical work for the first two years, you're dealing with the wrong mechanics.

Naturally, this advice is useless to people who view their cars as any kind of status symbol - or maybe not: personally, if I planned to spend the $35,000 on car acquisition that seems de rigeur these days, I'd get seven little Japanese cars, each one a different colour of the rainbow, and park them out the front of my house wearing personalized number plates reading MONDAY, TUESDY, WDNSDY, THRSDY, FRIDAY, SATDAY, SUNDAY.
posted by flabdablet at 9:16 AM on March 18, 2015 [1 favorite]

We bought new in 2012, and I was surprised to learn that many dealers now throw in a year or two of oil changes, roadside service, etc. Then again, the tires that were on it were only expected to last like 35k miles, which is kind of lame. But but, you only do oil changes every 10k miles now, and our dealer threw in really nice floormats &c.

Before that we bought a 2005 Camry in 2006, which I still drive. It was much cheaper than it had been a year earlier (according to the dealer, a design change led to a flood of sudden trade-ins by people wanting the new style), and I have put like 120k miles on it since then as a daily commuter. Are any of your desired cars also a year out from significant change which doesn't matter to you? They might now be better candidates to buy slightly used.

In conclusion, car-buying is still a land of contrasts.
posted by wenestvedt at 7:43 AM on March 19, 2015

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