Buying a New Car?

New v Used: What should you get as your First Car?

It’s a debate that’s been around as long as the automobile: whether you should invest in a new or used vehicle when buying a car. Ask a few different people this question and you’re likely to find opinions ranging from indifference to rabid defence of either option. You’re also likely to find a fair bit of misinformation floating around to support the different opinions on this issue.

All of this can put a first-time car buyer under quite a bit of pressure, as you can end up feeling like you’re making a serious mistake no matter which option you choose. Fortunately the fact of the matter is that there are pros and cons to both options. As long as you know what these are and have a good idea of what you want from a vehicle, you’ll probably make the right choice.

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Buying a new car

Buying a brand new car carries an emotional appeal that a used car doesn’t offer. You’re the first owner of a shiny, modern vehicle with that fantastic new car smell. You’ll also have the option of customizing its features and trim to meet your specific requirements. However, the emotional rush you get when buying a new car can be a negative if it stops you from considering the practical consequences that come with this decision.

The pros

  1. Peace of mind
    The car will typically be issued to you with a warranty and service plan. This means that your car maintenance costs over the period covered will be negligible. This doesn’t just offer some peace of mind, it can protect you from unexpected, financially crippling maintenance and repair costs.
  2. Improved safety
    New cars offer access to the latest technology. This can include updates in car safety features, and it’s not unusual for optional safety features from previous generations of cars to become standard issue in newer vehicles. That means that a new car is likely to offer better safety than an older version of the model you’re thinking of buying.
  3. Lower fuel costs
    New cars are increasingly being issued with features designed to improve fuel consumption and reduce carbon emissions. These range from stop-start systems to more efficient engines.
  4. Better financing options
    New car buyers have access to a variety of financial perks that do not apply to used car buyers. These can include buyer’s assistance (in the form of significant cash discounts on the listed price) and preferential interest rates. You’ll also have a wider choice of purchasing options, such as guaranteed rebuys combined with preferential instalment rates.
  5. Free roadside assistance
    Most manufacturers will throw free roadside assistance into the deal when you buy a new car. This typically includes a free towing service in the event of a breakdown, but can also include emergency medical assistance and even free use of a replacement vehicle if yours breaks down. It may not sound like a huge perk up-front, but you’ll appreciate it when you need it.
  6. More advanced entertainment and telematics systems
    New cars tend to make use of the latest advances in entertainment and telematics technology. So you’re more like to find a touchscreen entertainment system with Bluetooth streaming, navigation and a decent speaker system in a new car than you are in an older car.

The cons

  1. It’s more expensive
    Instalments on a new car are going to cost you more than instalments on a similar model of used car. Many new car buyers reduce their instalment costs by financing the vehicle over a longer period of time, which extends the cost of new car ownership rather than reducing it. New cars are also more expensive to insure.
  2. Depreciation
    New cars lose value far more rapidly than used ones. Exactly how much value is lost depends on the make and model, how quickly it racks up mileage and how much demand there is for it in the second hand market. On average a new car will lose between 10% and 40% of its value in the first year of ownership, and between 45% and 75% of its value in the first five years. The value lost in depreciation is effectively the price you pay for owning a new vehicle.
  3. New release issues
    If you’re buying a car that has just been released onto the market you stand the risk of being the first in line to encounter issues that weren’t picked up in testing. While the costs associated with these are usually absorbed by your warranty, it can still mean the inconvenience of losing access to your car during recalls and repairs – not what you’re looking for from a new vehicle. These types of issues are typically hammered out over the lifetime of a model, so it can be a good idea to buy a new car a year or two after the relevant model was released by the manufacturer.

Buying a used car

Buying a used car can be rewarding in its own way. Because used cars are cheaper than the same model new, you can generally get a better quality car for your budget. You also won’t have to deal with the sense of anxiety that comes with the stiff repayment schedule you’re virtually guaranteed with a new car.

The pros

  1. Price
    When you buy used someone else effectively pays the cost of the car’s depreciation for you, which is a major benefit if it’s handed over to you in good condition. The lower price means lower monthly instalments and the opportunity to buy a better quality car than you’d have been able to afford in the new car market.
  2. Less depreciation
    Not only are you a beneficiary of the depreciation in value of a new car, but once the car is in your possession the rate of depreciation will drop off. This means that if you keep the car in the same condition as you buy it, you’ll get a bigger proportion of your money back when you sell than if you’d bought it new.
  3. Cheap extras
    All those stylish extras the previous owner had installed on their new vehicle at a premium are effectively yours either at a discount or for free. That’s because many manufacturer add-ons don’t add anything to a car’s book value. So you’ll typically get a wider selection of value-added features on a used car than you’d be able to afford on a new car.
  4. Warranty options
    Many dealerships offer you the option of buying an extended warranty and service plan with a used car. This incentivizes dealers to ensure that the second vehicles they sell are in excellent condition and significantly reduces your chances of being sold a lemon. If your used car does act up, you’re protected from unexpected maintenance costs.
  5. Insurance
    Because a used car is cheaper to replace it is usually cheaper to insure.

The cons

  1. Lemons
    The fact that there are companies out there that specialize in investigating the history of used cars tells you a lot about the risks attached to a used car purchase. According to one of these companies, around one in four used cars sold in Australia conceals issues. That means that when you buy a used car there’s a high risk of breakdown and extended repair periods. If you don’t have a warranty you could find yourself seriously out of pocket or without a car.
  2. Outdated features
    Unless you’re buying a nearly new car, you’re going to miss out on the latest generation of improvements in safety, fuel efficiency, entertainment and design. Safety in particular can be an issue, as rapid advances in this area can significantly improve driver and passenger safety in the latest models of many cars.
  3. Fewer financial perks
    You’re going to have fewer financing options when it comes to buying a used car. Chances are you will have a choice between paying cash upfront or going onto an instalment plan at a stock-standard interest rate.

Wrapping it up

Now that you have an overview of the pros and cons of both options, it’s up to you to decide what you want out of your vehicle.

This comes down to some personal judgement calls around the importance of factors like:

  • the experience of buying and driving a new vehicle
  • the monthly costs associated with car ownership
  • the extent to which you want to customize your car
  • whether you want a cheaper model new car or a better model of used car
  • the importance of having the latest safety, fuel efficiency and entertainment features in your car.

Get fair car insurance

Whether you’re buying new or used you can benefit from the latest advances in telematics technology. Download the UbiCar app now to have your driving scored and get rewarded with a fairer priced car insurance quote that’s based on how safely you drive.

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