Last month, Money Talks News ran an article on "common money mistakes"—one of which, according to author Marilyn Lewis, is "buying a new car." She brought up the oft-cited statistic that a new car loses 20 percent of its value within the first year, so clearly, buying new is like throwing 20 percent of your money straight down the drain. By choosing a used car instead, she implies, you can save 20 percent off the price without losing anything in terms of reliability or overall lifespan, and save on insurance and registration fees at the same time.
This advice is widely repeated in financial publications of all sort, and for many years, I accepted it without question. Then, five years ago, Brian and I started shopping for our current car (after our old one perished in a collision at the ripe old age of 16), and I suddenly discovered that this standard advice might not actually hold true, at least not in all cases in all cases. The problem, for us, was that the type of car we wanted—small, efficient, reliable, safe, and equipped with a manual transmission—wasn't really available secondhand. After diligent searching, I finally managed to locate one two-year-old Honda Fit with a stick shift, but it was listed at $13,000, and a brand-new Fit would only set us back around $15,000. So, assuming that we would keep this car until it was at least 15 years old—which seemed a safe bet, based on the age of our previous one—both the new Fit and the used one would cost us $1,000 per year of useful life, and the new one came with a three-year warranty and a lot of nice features the older model didn't have.
So Brian and I ended up buying the new Fit, and I started making it a personal mission to fight back against the one-size-fits-all advice that used cars are always a better value than new ones. Every time I saw this old canard pop up in a personal finance article, I would respond by telling my story in the comments section. But eventually, I decided to stop playing defense and go on the offensive by publishing an article of my own.
Hence, my latest Money Crashers piece. It explores all the pros and cons of buying new cars as opposed to used ones, including purchase cost, insurance, maintenance, and reliability. I also discuss the option of buying a certified used car, which offers a compromise between the (usually) lower price of a used car and the (usually) better reliability of a new one. And finally, I offer some tips for getting the best possible deal, whether you buy new or used.
Of course, this is only one article standing against the dozens, if not hundreds, out there parroting that same old "never buy a new car" line. But at least it will tilt the scale a tiny bit towards a more balanced viewpoint.
Buying a New Car vs. a Used Car - How to Choose & Get the Best Deal