Can a Brand New Car Be a Better Deal than a Used Car?

used cars sign

Since I first became interested in personal finance a few years ago, I have been dead set against buying a new car. As a person who likes to save money, the thought of buying something that would depreciate tremendously as soon as I drove it off the lot made me shutter. Plus there was the fact that I could buy a slightly used one, with possibly more features, for a lot less money. This is appealing because I like to get the best value for my dollar that I can.

That’s why I could hardly believe it when I found myself even discussing the possibility of buying a new car with my husband recently. Somehow I found arguments as to why it could be smarter for us to actually buy new rather than used like we were contemplating. Funny enough, it really had less to do with the “new car smell” (which I honestly don’t even like all that much) or the warranty, but more about the bottom line dollar amount. Sounds strange huh? Well here are the few reasons I found myself contemplating forking out a lot of money for a nice new car.

High Resale Value: The particular car we are looking at has a pretty high resale value, the fact of which competes with the depreciation argument most given by used car advocates. The 2008 model of the car we wanted was going for $20,000, while the 2007 model was going for around $18,500 and the 2006 for around $17,500. So the difference between the brand new car and the slightly used one wasn’t thousands of dollars, but rather only a couple thousand dollars.

Realizing this, I began to weigh the couple thousand dollars against all the benefits a brand new car brings (warranty, known vehicle history, no miles, perfect condition, etc.) I do realize that most new cars drop their values significantly more than this in the first few years, but this particular make holds its value pretty well, thus giving the new one an edge.

Incentives: Since I’m all about saving money, I had to note the special incentive offers that were being offered on only the new cars. At this time it was $1000 cash back AND 0% financing. Usually you have to choose between the cash back and low financing, but these were being offered together. This closed the already low price gap even more.

I figured (and hoped) that on a car marked $21,000, I could talk them down to $19,000 and with the $1000 cash back I could get it for $18,000 — making it barely more than the used 2007. Not to mention all the money we’d save on interest with a 0% loan. “How incredible” I thought. I was really starting to think that we should buy this new car, even though I’ve been dead set against that idea for years.

Warranty: Above I mentioned that I wasn’t too concerned about a warranty on a car, mostly because I’ve never had one and I’ve been fine. But I have to admit that I did start to factor that benefit in when I realized the new and used car prices were so similar. Not having to pay for any repairs for a few years was definitely tempting.

So based on the above, I had pretty much convinced myself and my husband (although he didn’t need too much convincing) that the new car would be the better deal for us. However, I’m not the kind of person to make a quick decision as I tend to think things over a lot, even if I thought I had already made a decision. The more I thought about it and after doing a little more research, I turned my tables again.

The Real Deal Ok, so if the list price on the new car is $21,000 and I would be able to talk them down to $19,000 then realistically I would be able to do the same negotiating on a used car with the sticker price of $17,000 or $18,000. Minus the $1000 rebate, the price gap grew again when I realized this. Plus I’ve heard that dealers have more room to negotiate on used car prices than on new. Oh — and the 0% financing? Upon further investigation I found that it is only for 24 months (can you say too good to be true?) While we do intend to pay our car off within 2 years anyhow, I wanted to do it on our own schedule and not be stuck with $600 a month car payments. Lastly, this particular car has a transferable warranty so we would still receive a partial warranty with the slightly used car.

The bottom line came down to the fact that we could get a nice used car that was exactly the same as the new one for about $3000 less and while that doesn’t seem like a lot of money when talking about a car, it’s still a lot of money for us. This made me think of all the house projects we could do with $3000 (since we do all the labor ourselves).

So now we are planning on purchasing a slightly used car that’s exactly the same model and features as the brand new one we looked at. I have to say that I feel a lot better about making (what I consider to be) a wise decision in regards to our car. I do understand now why some people find it a better option to purchase new instead of used, but I think it depends a lot on each person’s specific circumstance. This was just an example of our particular circumstance and the choice we made.

Image courtesy of smcgee

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21 Responses to Can a Brand New Car Be a Better Deal than a Used Car?

  1. a says:

    Did you factor in differences in interest rates on new vs used? Or the economic conditions — more used vehicles available vs. greater desperation to sell new vehicles in a down economy? Or the air speed velocity of an unladen swallow?

  2. Traciatim says:

    Did you consider the fact that I’m 4 years in on a now 6 year old car and just blew an engine and sunk 6 grand in to my car over the past month putting my maintenance for non-regularly maintained items over the past 4 years to over 9 grand (very near 10). That’s on top of things like tires, brakes, oil, and other fluids.

    I hope yours works out better than my POS.

  3. Raven says:

    The extremely high value of the Canadian dollar recently made the purchase of a brand new car more sensible than keeping my old car or buying one used. I was sold the car for ‘cash price’, but was still financed at 0% (I could not have had a used car financed for less than 7%, which pretty much equals the total cost of new vs. used); was given more for my trade in than it was worth; and have a five year warranty that means the only expenses I’ll have for this car will be tune ups and routine maintenance (so no surprises). My car payments and new insurance payments are now considerably lower than what I was paying on my old car, for which I would have needed several thousands of dollars of routine maintenance done this spring. The new car saved me money.

  4. JL says:

    We just purchased a new car because alot of the factors you listed above. What made our decision is that the financing on a new car was only 1.9%. Probably the best rate we could of received on a 1 year used one was about 6.5%. We we put the number to paper we were paying $2/month more for the new one.

    Alot of our vehicle purchasing decision is based on resale value as well. We have had great luck buying the Toyota product.

    Another tid bit hear. I work in the automotive industry and most dealers put at least $3000 profit into used vehicles sometimes more. If a vehicle has been sitting on their lot a while they are more likely to give you a better deal because soon it will be going to auction and the dealer will be losing money on a vehicle that has been sent to auction.

    If you are purchasing a new vehicle you can configure the new vehicle on edmunds or intelichoice and find out the invoice of the vehicle. My experience is that these are fairly accurate. Always buy a new vehicle towards the end of the month. Most Sales Managers/Salespeople are setup on a bonus structure that rewards them on volume of sales. So if they have not meet their monthly goals, they are are likely to get a manager that is going to wheel and deal with you on the price of the vehicle.

    Best of Luck

  5. Debbie M says:

    Since I always buy cars that are ten years old, it’s difficult for me to imagine that buying a new car would ever be a better deal.

  6. Spokane Al says:

    We just purchased a new Toyota for my wife.


    We have owned a number of Toyotas and find their reliability to be the best. We have owned my wife’s current car (a Corolla) for 13 years and three previous Toyotas for at least that long.

    I like the safety features of the new cars i.e. side curtain air bags, traction and stability control.

    We pay cash for our cars so financing is not an issue.

    Because we keep our cars for so long resale value is not an issue, although it is nice to see how much we get when we do end up selling our old car.

    Our current car will go to our son who will probably drive it for a number of years, as he did a previous Toyota that was passed on to him.

  7. Ken says:

    Were you looking at a base model Subaru Legacy?

  8. Cortni says:

    You are correct. We were looking at a Legacy- and still are :)

  9. Mr. Stupid says:

    Not sure I follow the logic here.

    “[for the new car at] $21,000, I could talk them down to $19,000 and with the $1000 cash back I could get it for $18,000

  10. Ken says:

    On the base model, the best you are going to do is about $20k, plus the $1k rebate and 0% financing.

    You may be able to do a little better on end of month/quarter at a high volume sales location.

    Here is a link to the prices, expect to pay around the invoice. Although you should go through the auto dealers internet saleman and email them. Tell them you are emailing all the local dealers, you know this is the price, this is the invoice, you will buy from the person with the lowest price and it must match or beat invoice price.

    Now thats for buying new car. In the NW subarus hold their value extremely well. And i would be hard pressed to find a good enough deal on one used to offset the wear and tear, plus piece of mind.

    If you have any questions let me know. Also whats your location, as things vary around the country.

  11. Car Tips says:

    I think you made the right decision. I have bought a lot of cars in my life and wish I could redo my decisions. I started out my financial situation buying a new car right out of college.

  12. {FB} says:

    maybe I’m missing something here, but isn’t it ironic that there’s an article arguing FOR buying a brand new vehicle, on a saving advice site? LOL!
    I drive an ’88 toyota supra, and in the last 5 years, i’ve done maybe $1000 worth of maintenance on it. Still going strong. The car cost $3800.
    Right now, i’m looking for a used toyota rav4. I am going to pay cash for it, and hopefully drive it for 300,000 miles (or more).

  13. dean says:

    @ FB

    I think that is what makes this article interesting. The assumption is that a used car is the way to save money, but it’s important to always compare. There may be an instance when a new car makes sense.

  14. {FB} says:

    dean – agreed. It is good to compare. Some people may want the luxury of having a brand spanking new shiny car. So if they are dead set on doing it, they might as well save some money.
    For me, I love not having car payments every month, and my car has been far more reliable than many of my friend’s newer cars.
    a couple things to note.
    If I were to buy a new car, I would go with a Toyota. I am a toyota guy, and I probably always will.
    Also I read that someone is looking for a subaru legacy. I was looking at outback sports and foresters for a while, until I read about their unreliability (and Subaru customer service being very rude and unhelpful). The subaru 2.5 liter engine has a bad habit of blowing head gaskets, and the car seems to have an unusual amount of things go wrong with it before it even hits 100k. anyway, you can read about it on my blog:

  15. Miranda says:

    We don’t even consider paying more than $15,000 on a car, so new really isn’t an option.

    Our current (and first car bought as a married couple) is a lease return. These are usually well-maintained and have limits on the number of miles they can be driven. And the major depreciation has already happened.

    We paid off our ($10,000) current car in just under four years, and we don’t plan on buying another for quite some time. But we will probably keep our current car and then pass it on to our son when we get something else.

  16. Special Ed says:

    It’s funny to see this topic come up pretty regularly on PF blogs when the blogger is looking to justify a poor decision. It is particularly disappointing that writers on this site are doing it also. Any new car will depreciate more on the first year than it will the next five years and buying a good used car will always be a better financial decision than buying new. This is true of most depreciating assets. Buying a used car that is in poor condition is also a poor financial decision. A 3 to 5 year old Honda Accord will run for 10 – 15 more years for a fraction of the price of a new one. Use your head people.

  17. Jerrome says:

    Factor this, I bought a used car and a new suv. my used car of 7 years out performs my new car of 7 months. Money, well worry not, just shop visit your tri-state area ( if posible) great deals exsist, do you homework with banks and dealer assocations everything else is cake

  18. Jerrome says:

    Be very carful leaseing

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  20. Beth says:

    It was really nice to see a real breakdown of the costs involved with purchasing a new or used car. I’m getting to a point in my own life where buying a new car is becoming an option and seeing this information helps to clear the air around the new v. used debate.

  21. DelCid says:

    Depreciation should always be factored into the equation. Consumers planning to keep a car for fewer than five years will likely get a better value buying a used car from a recent model year, which already has that initial depreciation built into the price. But if you plan on hanging onto the car for at least five years, it

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