Buying a new car vs buying a used car

Buying a new car

There are many practical reasons why people buy new cars.

• Peace of mind

  New cars are less likely to break down than used cars, and are likely to remain mechanically sound for many years after purchase if serviced correctly.
  
  In addition, car manufacturers are offering increasingly competitive warranties, often ranging from three to five years, or covering a certain number of kilometres. This alone can make a new car a more appealing option than a used car, which, despite its lower purchase price, is likely to incur greater maintenance and repair costs.

• Features

  New cars also tend to come with the latest features - if these are important to you then a new car could be the way to go. For instance, later model cars are more likely to have the latest safety and fuel efficiency features.

• Car Economy

  Fuel efficiency features alone could save you a lot of money. In general, the later the model car, the more fuel efficient it normally is. Every year car makers are trying to improve the fuel efficiency of their cars, motivated by competition in the market place and the tightening of emission standards.

However, new cars are also more exposed to depreciation in value. All new cars suffer a decrease in value over time, and the effects of depreciation are felt most in the years immediately after purchase. In fact, new cars can lose about 40 per cent of their value within three years, at which point depreciation starts to slow down.

For this reason, many buyers target cars that are only a few years old. There are even cars available to purchase that are only a few months old!

Compare the prices of these cars to the new car price and you will see the effect that depreciation can have on the sale price.

Buying a used car

There’s no doubt about it, shopping for a used car is less glamorous than purchasing a brand new car straight off the showroom floor. It is also more risky, and tales abound in the media of shonky operators and used car purchases gone wrong. Private sales in particular pose many risks, particularly for older car models and those that have travelled a significant distance.

However, with enough research and negotiating skill, purchasing a used car could potentially save you a lot of money.

Used cars don’t always have to be bombs either - there are thousands of used cars available for purchase, ranging from near new models to collectable cars to well-maintained and serviced older vehicles. The growth of the internet also means there are new ways to connect to sellers of used cars without having to go through the traditional used car dealer channel. The key is research. Do your sums and you may find that the new car you have been considering is available as a used car at a much cheaper price, with only a handful of kilometres on the odometer.

Buying a used car privately can also save you the dealer mark-up. Dealers need to make a profit and pay for overheads such as premises and staff. With a new car you have to buy through a dealer. Do your research and you may find a bargain through the classifieds or online car sales sites such as carsales.com.au.

Some used cars present as bargains, and there are bargains to be had. But be mindful to take into consideration the ongoing motoring costs associated with your used vehicle. As mentioned previously, new cars often use the latest technology to save on costs such as maintenance and fuel. Conversely, older cars are often heavier on fuel.

Replacement parts and maintenance can be costly. Keep in mind the age of the vehicle, as generally, the older the vehicle is, the more likely it is to require costly servicing and maintenance.

A used vehicle may also lack all the features you require. Really old vehicles may lack even the most basic of features, such as power steering. Modern safety features such as airbags and anti-lock brakes become rarer the older the vehicle is.

Demonstrator Vehicles

Demonstrators are cars the dealer uses to demonstrate the model to customers. They are usually kept for a short time and may travel a few thousand kilometres before they are sold. Demonstrators can be an acceptable buy provided the price is right, however:

• You will in effect be buying a used car (it will have been first registered to the dealer)
• You won’t get the full new car warranty term as it will have started when the vehicle was first registered

Superseded and Old Stock

Old stock vehicles (i.e. vehicles with the previous years - or earlier - build date) may be an acceptable buy provided the price is right. But when shopping around, particularly in the early part of the year, be careful to specify the year of build you want to ensure an objective comparison.

Some considerations relating to superseded or old stock vehicles:

• Generally speaking, the longer you keep the car the less effect the earlier build date will have on its value
• If you turn over your cars regularly (e.g. every two or three years), make sure the discounted price for buying superseded stock sufficiently offsets the lower trade-in or sale price you can expect when it comes time to sell an older car
• Is the superseded model being replaced by a new model? If so, negotiate a price that compensates for it not being the latest model