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Ask M-Network: Should We Buy A New Or Used Car In This Economy?

My Two Dollars reader Steven S. sent in the following question to the M-Network’s new feature “Ask The M-Network“:

My family needs another car, as our 16 year old Chevy just died and my wife has no way to get to work other than me dropping her off. We were considering a late-model used import car (gas mileage and price), but with all the deals the carmakers are offering, should we buy new instead? I would appreciate your help!

And here are the responses from several of the M-Network members to try to answer Steven’s question…

Plonkee says:

I think this depends on a couple of things:
1. the prices of the cars
2. what you intend to do with them

Buying a new car, compared to a 2-3 year old car, will mean that it will (on average, all things being equal) last a couple of years longer. If you intend to run it to the ground, then that’ll give you another 2 years to save up the money for the subsequent purchase (avoid car loans if you can). I’d say it could be worth paying a small premium to have a brand new car in this case – maybe something in the region of up to 15% more.

On the other hand, if you intend to keep it for a few years and then sell, you need to look at the likely depreciation. The faster a car depreciates, the less desirable it is to buy a new car. If for example the choice was between a brand new car costing $22k and a 2 year old car costing $18k, and you were planning on selling after 5 years then it would be worth buying new if a 5 year old car was worth $22k – $18k = $4k more than a 7 year old car. In any case, always consider the total on-road price – taking into account finance charges, interest, and any registration costs. And a car with good mpg is always frugal choice – gas prices go up more often than they go down.

PaidTwice has this to say:

If that means Honda, Toyota, Subaru, or Nissan, and “late model” means 2 years old or less, right now, the difference you will pay for new vs used is seriously negligible. And if you are forced to finance the vehicle, you probably can get much better financing on a new car. So you may end up paying *less* for a 2009 Toyota Camry, for example, right now, than you would for a 2007 one with 30000 miles on it. So price carefully, run the numbers, and go with the most affordable option. Depending on the car, in this market that might actually end up new vs used.

Patrick from Cash Money Life says:

This is actually a tougher call right now than it is some other times. Normally I would recommend going with a used car because of the instant depreciation that happens when you buy a new car. However, new car prices are depressed because the dealerships just aren’t moving many cars right now. That means some new cars are only relatively more expensive than used cars.

There are obvious pros and cons to used cars – a used car usually won’t depreciate as quickly as a new car, and you can often get more car for your money. On the other hand, you don’t know anything about the vehicle’s history and used cars typically don’t come with a full manufacturer’s warranty. If you decide to go with a used car, be sure to get it inspected by a qualified mechanic, and consider getting a CarFax inspection – but don’t limit yourself to CarFax. In the end, the best thing you can do is run the numbers on several different vehicle options – both new and used – and go with the best decision for your needs.

And finally, Gather Little By Little says:

I always recommend paying cash for cars and being a “gently” used vehicle will low miles that is 2 or more years old. The key being 2 years as the majority of a cars depreciation occurs then. New cars lose their value at an insane rate and far better for someone else to take the depreciation.

Now, with that being said their are two exceptions to my rule: 1) Some foreign automobiles hold their value so well that the depreciation over 2 years is minimal 2) The current economy and auto market.

Some foreign cars like Honda’s and Toyota’s hold their value very very well to the point that buying new vs. used could only be a $500 – $1,000 difference. In that case, IF I had the cash I would buy new. I so agree though that now might be a really good time to buy a new car. Remember though, we’re in a recession where there will be job losses, pay cuts, and hard times. Are you sure you can make a new car payment? If you lost your job tomorrow, what would you do?

This is why I always buy used. I want my car paid for and no loan attached to it. I lose my job, I still have a car and if I need some cash I can sell it.

I am not sure how much cash you have, but if I were in your shoes I would pay cash for whatever kind of car I could afford. I bought a 2001 Ford Expedition last year for $5000.00 cash. Sure, I could have bought a new one for $40,000+ and would be getting much better gas mileage(20+ vs 12.5), but the money savings of $35,000 will buy a lot of gas! Don’t get too hung up in the mileage savings, just do the math. Layout a sheet of paper or a spreadsheet and make two columns one for a new car, one for used. I think you’ll find the used car is always the better deal. In any case, make sure you negotiate and know how to buy a car and get a great deal.

Hope these can help your family make this difficult decision, Steven! Do you have a question you would like to have us try to answer? Send it in to Ask The M-Network!

And please remember that our answers are opinions and should not be considered professional advice and we assume no responsibility of any kind. Please consult a certified financial expert as needed.

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Comments (6)

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  1. Brian says:

    Shouldn’t you also consider the use of the car; Commute only, or the families most used form of transportation in deceiding new or used?

  2. Gypsie says:

    I bought my car new in 1999 at the ripe old age of 19. I paid it off in under 4 years and I am still driving it today. And while my DH would like me to have a new car, cause mine has 110,000 miles on it, I plan on driving it until it dies.

    I bought it new in Germany (it’s a VW) and it has been all over Europe and the US.

  3. Doctor S says:

    I personally see no difference between a brand new car with zero miles and a used car with 0-25k miles on it. Cars depreciate the moment they get off the lot, this is all obvious, but it is often ignored. With carfax reports and the internet it is easy to find a great used car these days! And definately go foreign!!!

  4. I’ve never purchased a new car and don’t know if I ever will as it doesn’t make financial sense for our family. I guess if I had a business where I could take the tax write-off it would make a little more sense. I found an interesting article about a State Representative that wants to pass a bill that would give a federal tax rebate of $7,500 for new car purchases. My article can be found here: http://thepassivedad.com/2009/01/2009-bill-proposed-for-new-car-tax-deduction-up-to-7500/

  5. FFB says:

    We bought a new car over the summer. We could have paid cash but our financing was only 0.9%. By financing we’re able to keep the cash in our ING account instead which is 2.5% right now. Not a huge difference but still a difference.

    I know many prefer the used route. We considered this but wanted the reliability of a full warranty. We fully expect to keep the car for en years or more.

    You really have to look at your whole situation to come to your decision. I don’t think there is one “right” answer.

  6. david says:

    I agree 100% FFB, it all depends…

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