Buying a car is always fun and exciting, but it can also be confusing. The biggest question most people have is whether it is better to make a new vs.
used car purchase. There are many pros and cons for each, so your decision depends on your needs, current and projected finances and the intended use of the vehicle. Here are seven things that you should consider thoroughly when deciding which type of car to buy.
Financing Options
Money is one of the most important factors for determining whether you should make a new vs. used car purchase. You essentially have three options:
- Purchase a brand new model
- Purchase a new car
- Lease a new or recent model
You can pay for a new or used car in full with cash or take out an auto loan and make a down payment. To lease a car, you need to pay “due upon signing” costs such as a down payment, fees, taxes and the first month’s payment. After the upfront costs, you pay the dealership a flat monthly rate throughout the term of your lease agreement. At the end of your lease, you may owe additional fees such as damage and excessive mileage fees.
Ownership
Ownership perks are essentially the same for a new vs. used car purchase. When you buy a new or used car, you have complete ownership over the vehicle, which means you can customize the entire car to your liking, pass the car down to family members, sell the car whenever you wish or keep the car for tens of years and rebuild it from scratch.
When you lease a car, you do not own the vehicle and must return it when the agreement expires. You cannot make any modifications, sell the car or rebuild it yourself. You also usually have to stay under a defined mileage limit, and the only individuals who are legally allowed to drive the car are those listed specifically in the lease. If you really like the car, however, you have the option to buy the vehicle when the agreement ends.
Business Tax Deductions
Certain costs associated with buying and leasing cars can be deducted from business taxes so long as they are directly and solely used for business purposes. However, there are some exceptions and differences that you need to investigate before deciding on a new vs. used car purchase. For example, interest on new and used car loans are not tax deductible, but a portion of the depreciation and interest for leased cars is deductible. Refer to the IRS for specific information if you’re considering using a car for business.
Depreciation
New and used cars inevitably depreciate and you can sell them at any time, but you never get a full return on your investment. Therefore, the only major difference in a new vs. used car purchase is that a used car has already significantly depreciated. For leased cars, however, the dealership assumes any losses due to depreciation.
One way to determine depreciation is to check out the "Blue Book" value of used cars. This can help determine what a vehicle is worth and how quickly the value goes down. Blue book values come from the "Kelley Blue Book" which has been distributed for years. It amalgamates values and helps people figure out the value of potential purchases.
Reliability
New cars are desirable because their parts are new, have the latest technology and are covered under warranty for a defined period of time. Leased cars are similar in that any abnormalities are covered in the agreement.
A used car purchase, however, is hit or miss. You may find a reliable seller, but the history of the components, maintenance and replacement may not be explicit, so you may not be completely informed of the condition of your car.
Maintenance and Repairs
Maintenance is certainly where the battle between a new vs. used car purchase gets interesting. New car maintenance and repairs are entirely the responsibility of the owner, except for recalls and anything under warranty or included in a pre-purchased maintenance package. Leased cars require some regular maintenance such as oil changes, but other larger maintenance items are typically covered in the lease agreement.
Again, used cars are hit or miss. You may need to perform major maintenance and repairs, or you may have actually purchased a reliable vehicle that simply requires normal upkeep at designated time intervals.
Intended Use
If you want to buy a car once, own it for many years and are willing to keep up with maintenance, a new car is a great option. A used car purchase provides the same benefits when having a new model is not a priority.
Leased cars are great when you want to sample a variety of cars without committing. However, if you intend on driving long distances, keep in mind that there are mileage limitations to consider.
The Bottom Line
In the short-run, leasing or buying a used car is generally cheaper than buying a new car. However, buying new could save money in the long-run when considering other factors such as maintenance costs and resale value. The bottom line is, when deciding on a new vs. used car purchase, you need to weigh your finances, priorities and intended use for the car in order to make the decision that’s right for you.