It seems like a no-brainer that buying a used car, even one only two or three years old, would be cheaper than purchasing a new one. And this has traditionally been the case. But in a down economy, you can’t count on that type of logic anymore because you might find some unusually good deals on new cars. It’s always a good idea to crunch the numbers and never assume anything when it comes to such a major purchase.
New Car Depreciation
New cars lose their value faster than the latest teenage pop star. As soon as you drive one off the lot, the car depreciates. Here’s why: you probably paid retail price at the dealership, but as soon as you buy the car, it’s worth wholesale price -- the price the dealer would pay you to buy it back. Your new car is probably worth thousands less than what you paid for it the same day you drive it home. Most cars depreciate about 47 percent in the first three years, according to Consumer Reports.
Used Car Depreciation
Used cars have already taken that big depreciation hit, so they are often a better value, especially cars just two or three years old. Used cars lose only about 18 percent of their value in years three to six. Cars tend to go well past 100,000 miles if they were properly maintained, and many can hit 200,000 without a major problem.
You might be able to buy a 2- or 3-year-old car for less than what you’d pay for a new one, but you need to figure in the cost of repairs. Warranties typically cover a car for the first two or three years only. Not only will you need to pay for repairs when the car is off warranty, the older the car, the costlier the repairs generally are. The first major repair usually is required at 36,000 miles, which translates to approximately year three. You also will need to replace the tires, battery and brakes at some point in the near future after the 36,000 mile mark. There is always the chance, too, that the previous owner did not properly care for the car or that the car is a lemon. You can lessen your chances of buying a lemon by having a mechanic inspect the car before you buy it.
In a down economy when people are not rushing out to buy new cars, you will often find dealership incentives to get you to buy one. Typical incentives are a cash rebate from the manufacturer, lower prices on new cars that are last year’s model or low — even zero or 1 percent -- interest rates. A down economy also means more demand for used cars. This translates to fewer available used cars and worse deals for you when shopping for them.
- Jupiterimages/Pixland/Getty Images