• Buying a New Car or a Previously Owned Vehicle

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    Nothing beats that new car smell … except perhaps, scoring a great deal on the purchase price. A used car—even just one or two model years older—can cost considerably less than the newest version of the same car and may have more features.

    There are definite benefits to buying new, and just as many benefits to buying used. Before you embark on your car search, take a practical look at the benefits and drawbacks of buying new or buying used.

    New cars will sport the latest and greatest features, newest colors and trendsetting perception. There is no question about maintenance history, prior accidents or driver handling. The euphoric feeling of driving off the lot as the premier owner of this new machine is unmatched by anything … except the thought that it’s no longer new as soon as you drive off the dealer’s lot.

    The value of a new car drops thousands of dollars the day it is purchased. If you’re planning to drive your new car into the next decade and beyond, depreciation should have little effect on your decision; the value of your car is only relevant if you plan to sell it or trade it in.

    However, you may want to consider that if you are in an accident, the value of the car is what the insurance company will use to determine the amount of your settlement. In some cases it may be advisable when financing your vehicle to inquire about “Guaranteed Asset Protection” (GAP) to cover any negative equity position in the event of a “total loss.”

    Driving off the lot in a used car may not feel as glamorous as piloting a new car for the first time, but there are some definite benefits to being patient. For starters, all those bells and whistles that cost a premium in new cars often come standard, or at a considerable cost reduction, in used cars. Insurance premiums will be lower and if you pay an excise tax in your community, that will be lower as well.

    Unless you are familiar with the prior owner and the vehicle’s prior use, it may be advisable to get a “vehicle history report” which can be found on-line or the dealer can get it for you.

    These cost savings may come with a bit of risk. Buying used means someone else owned it, drove it and, maintained it (you hope). If you know the previous owner, you may have peace of mind; be sure to ask for all maintenance records and have the car checked by a trusted mechanic. Buying a “FACTORY” certified pre-owned car from a dealer will include a warranty, but you may also want to have it checked by a professional.

    You may want to consider purchasing an “extended warranty” that will cover your vehicle for the miles you intend to drive in the future. These warranties vary widely in coverage so you will want to select the coverages and cost that suits your needs.

    New car benefits

    Latest features
    Low miles
    Best warranty
    New car smell!

    New car drawbacks

    Highest upfront cost
    Immediate depreciation in value
    Higher insurance premiums

    Used car benefits

    Lower cost
    Slower depreciation
    Shorter loan with lower monthly payments
    Step-up opportunity – more bells and whistles for less money
    Lower insurance premium

    Used car drawbacks

    Unknown maintenance and service history
    Second hand; others have driven it
    Higher mileage
    Warranty may be limited

    May 21, 2014