In a previous column, we pointed out several reasons to consider buying a used car instead of a new one. For many Fools, used cars are a tremendous value purchase. But there certainly are benefits to buying new, benefits that go well beyond that intoxicating stew of volatile organic compounds.
So, what do you get for that 30% premium you pay for buying a new car, instead of a two- or three-year-old used one?
A longer, more comprehensive warranty
Of course, that discount special parked in front of Joe's Bait and Easy-Pay Used Cars doesn't have any warranty at all. But the best used cars -- the lightly used former lease cars sold by new car dealers under factory "certification" programs -- do come with warranties. While "certified" cars can offer good value, certification-program warranties are never as good as that manufacturer's new-car warranty. Some new car warranties even cover oil changes and the like for three or four years, or as many as 50,000 miles.
The latest safety, convenience, and environmental features
This one speaks for itself. If you want the best airbags and electronic stability systems and super-deluxe seat-warmer doodads -- and the cleanest engines -- you've got to buy new.
A car that lasts longer
Beyond the obvious -- a new car should have two to three years' more life in it than a two- or three-year-old one -- there's an additional advantage to buying new. Are you a stickler for maintenance? If you are, your car will last longer and deliver more value. But unless you've got access to a used car's full service history, you don't know whether its first owner changed the oil once every 3,000 miles, or once a year. Careless maintenance early in a car's life can have long-term effects that might not show up until much later.
Better financing terms
Unless you're planning on paying cash for that new ride, financing costs will be a sizeable chunk of what you pay to own your car over the first few years. Buying new entitles you to low-cost factory financing and (often) special deals, which can represent a sizeable savings over a bank loan. And even if you do finance through your bank, you'll often pay more on a used car loan. Rates on used car loans from major banks such as Bank of America and Wells Fargo are often a full percentage point higher -- or more -- than their new car loan rates.
A simpler purchase process
Buying a new or used car is nobody's idea of fun. But when you're buying new, you know what's available, you know where to go to get it, and most importantly, you know what it's going to cost you. It's easy to find a new car's "invoice" price -- the dealer's cost -- from sources such as edmunds.com and Consumer Reports, and to learn the average selling price of your desired beastie. The price you end up paying will vary from there, depending on your negotiation skills and local supply and demand, but it won't vary like used car prices do.
One last note: All of the above points assume that you're planning to own the car for a long time, until it's old and tired. If you're the sort who likes to trade every two or three years, I urge you to consider used-car options carefully. You take a financial hit every time you trade in a car, and that hit gets bigger if you have to eat new-car depreciation every time around. Whatever you decide, add up the total costs before you buy, and make sure that your new purchase won't get in the way of your long-term financial goals.
For more Foolishness:
- Everything Buffett Needs to Know, He Learned Right Here
- The Next Great Place to Invest
- Your Ticket to Country Club Riches