Five Smart Reasons for Buying a Used Car

There may be nothing like the smell of a brand-new car, but you could be paying dearly for it. Vehicle reliability and durability have improved so much that the most cost-effective way to own a car now is to buy one that's 2 or 3 years old and run it into the ground.

Price

Of course, a used car is going to cost less than a brand new one, but that's not the whole story. The popularity of leasing means a lot of well-maintained, 2- or 3-year-old cars are returning from leases. If you choose the right model, you could save up to 40 percent of the retail price by buying one that's 3 years old. Alternatively, buying used may mean driving a vehicle you could never afford at its new price. Be aware though that spares for luxury models such as BMWs are expensive.

Depreciation

Depreciation is the main reason for the price gap between new and late-model used cars. A new vehicle depreciates by about 20 percent as soon as you buy it, and a further 10 percent in its first year. That means your neighbor's $30,000 brand-new pride and joy will be worth less than $22,000 in a year's time. Edmunds and Kelley Blue Book are reliable sources of used car prices (see Resources). If you buy a car used and then decide to turn around and sell it in a year or two, it will not depreciate in price nearly as much, so you can recoup much of what paid for the car.

Reliability

Buying used means avoiding the inconvenience and potential safety issues of factory defects. Many manufacturers have programs for pre-owned vehicles, and when you buy a certified car from a dealer, you'll get a full-service history, the security of knowing that the car has passed a rigorous inspection and a manufacturer's warranty of up to 12 months. If you buy a non-certified car, get a history report through Carfax or AutoCheck to verify the car hasn't been in a major accident and also have your own mechanic do a full inspection.

Insurance

The value of the car is the major factor in determining the cost of insurance, so the lower purchase price of a used car will mean lower insurance premiums. Additionally, finance companies usually insist on full coverage, which can add 15 to 20 percent to the initial price of the car.

Ongoing Costs

State registration fees are often based on the value of the car, so a pre-owned car can cost significantly less to register each year. If your car is no longer under warranty, you can also save money by using an independent mechanic for repairs and maintenance.