We’re in a strange economic time right now with many dealers having an extreme shortage of inventory due to a chip shortage. Chips, or semiconductors, play an essential role in managing vehicles’ safety devices, engine functions, and more. Because of the pandemic, U.S. automakers had to close factories to slow the spread of the virus and cancelled chip orders, expecting fewer people to buy.
Computer-chip suppliers shifted to personal electronic devices, which continued to surge. When car buying picked up, chip manufactures could no longer meet the demand. Then, fewer trade-ins and higher prices ensued. Buyers have been turning to used vehicles due to supply and demand issues. As a result, we’re now seeing values rise for pre-owned vehicles.
It’s difficult to determine when the shortage will end, but it’s causing a dilemma among buyers: Is it better to buy a new or used car right now? To help you decide, we’re taking a closer look at the new car vs. used car pros and cons and tips to keep in mind during the car-buying process.
Advantages of Buying a New Car
For many, buying a new vehicle is a dream come true
. You can sink into an ultra-comfortable driver’s seat and enjoy that new car smell. All the new features seem to shimmer and shine. As the first owner, you know exactly what you’re getting — bonuses without the blemishes. You’ll discover some enticing benefits, such as:
- Warranty Coverage: New cars have the manufacturer warranty built into their price. The bumper-to-bumper coverage, which covers every part your new ride had when you bought it, usually lasts up to three years or 36,000 miles (whichever comes first). A new car warranty can give you peace of mind. Plus, most new vehicles even include roadside assistance — so if something were to happen, you wouldn’t have to worry about the towing cost.
- Attractive deals: Dealerships are often highly motivated to sell new cars, so you’ll often see 0 percent interest financing or alluring cashback incentives. It’s always good to ask dealerships if they’re running any special promotions too. However, the devil’s in the details — make sure that you read of all the fine print. Most of all, if you have to pick between deals, do the math to see which option will save you the most money in the long run.
- Customizable options: Ready to feel like a kid in a candy store? From picking your favorite color to tech gizmos, buying a new ride often allows you to tailor it to have the latest features. You’ll also find more advanced safety features. For example, anti-collision control and exit warnings. With used vehicles, it can be difficult to make any new changes with the added expenses for parts and labor.
Disadvantages of Buying a New Car
It’s easy to ooh-la-la at all of the benefits of buying new cars. However, it’s a good idea to consider the disadvantages too, especially if you’re trying to be more financially conscious:
- Fast depreciation: You’ve probably heard that new vehicles lose value within seconds of driving them off the lot. Unfortunately, this is true — sometimes the value goes down as much as 20 percent. So, when you turn around to sell it, the trade-in value won’t come close to the original price. Most of the depreciation with new vehicles happens within the first two to three years. Any little paint chip or parking ding can also bring the new car’s value down even further.
- Higher expenses: The average price of a new ride continues to climb — in the ballpark of $40,000 as of 2021. You might just take a U-turn on buying a new ride when you see the total cost with additional insurance and sales tax expenses. And once the warranties expire, it may be more expensive to repair or replace technical features or other parts because they’re so new.
Advantages of Buying a Used Car
Used cars, or “pre-owned vehicles,” may have some history, but the price tag’s less likely to make your wallet run for the hills — usually. You have to go to the dealership to buy a new car, but with used cars, you have more options. Instead, you can look at listings from private parties and several online marketplaces. Plus, it’s possible to get a late-model used vehicle at a much lower cost than a new one. And who doesn’t love a good deal?
- Less Expensive: Buying a used car is probably the best route for you if you’re looking to save money. You’ll also pay less overall for taxes and insurance. Plus, you can usually pay off a used car’s loan faster than with a new car. And, you won’t have to stress as much if the vehicle succumbs to a couple of nicks or scratches.
- Slow depreciation: Once a vehicle is a couple of years old, its depreciation rate starts to slow down. So a used car holds its value longer, which comes in handy when it’s time to sell it. Plus, you’re less likely to go “upside down” on the ride (owing more than the car is worth).
Disadvantages of Buying a Used Car
Used cars may not seem as appealing, especially when they lack that new car smell and you don’t know why they were discarded. While used vehicles come with a couple of challenges, you can often overcome them by doing your research and exploring your options.
- Less reliable: Unfortunately, you won’t always know the complete history of a used car, especially when it’s being sold “as-is.” It’s a good idea to review a used automobile’s CARFAX report to verify critical information and evaluate accident reports. Used vehicles typically have higher mileage, which can compromise their lifespan. You may also be paying more with replacing parts and repairs, especially if the car’s no longer under warranty.
- Limited selection: If you’re looking for a specific type of vehicle with certain features, you might be disappointed if you can’t find exactly what you’re looking for. Buying a used car might mean choosing something more reliable that fits your budget.
Ultimately, knowing whether you want to buy a used or new car (and the type) will on-ramp you to a smoother auto-buying process. However, don’t feel you need to rush through it. These days, most people are in the “car-buying market” for three months. Here are some tips to help you navigate the process:
- Do some research: Before you step onto the lot of a dealership, be sure to arm yourself with some critical details. For example, know the value of the ride you’d like to buy, as well as your trade-in — Carvana, CarMax, Kelley Blue Book can all help give you helpful estimates. With this number in mind, you can take on the steps of financing and negotiating with more ease. Also, be sure to email the dealership and request quotes on your trade-in beforehand.
- Explore financing options: It’s a good idea to look at your auto loan options sooner rather than later. Before you buy a new or used car, this calculator can help determine your monthly payments. You can finance an auto loan at a lender first or while you’re at the dealership. At SCCU, we offer a quick approval process, no application fees, competitive interest rates, and flexible terms for auto loans.
- Keep an open mind: As we’re in trying times with the shortage, automobiles with certain features might be out of reach for a bit. New vehicle costs are rising more than usual, and some used cars might cost just as much as their new car counterparts. However, something that fits your needs at a good price is most likely out there (it might just be in a town or two over). You can also look at how values compare for specific used and new vehicle makes and models at iSeeCars.com.
- Consider other options: Leasing can be a good short-term solution if you’d rather wait to buy a specific ride. This allows you to try out different brands/models and make lower monthly payments (depending on the car). You can learn more about the pros and cons of leasing an automobile here. As vehicles are pretty valuable right now, you could also consider selling a second or third car that you don’t use often and saving that cash for a future down payment.
Is it Better to Buy a New or Used Car?
Both used and new cars have attractive benefits and challenging downsides. But if you’re looking for a happy compromise, we recommend considering certified pre-owned (CPO) vehicles. They’ve undergone a detailed inspection and come with a manufacturer-backed warranty. You might be paying a little more than non-certified used vehicles, but you won’t have to stress as much about potential repairs. If you have any questions about getting an auto loan, feel free to get in touch with us
. We’ll walk you through the steps and offer more tips!