Over a five-year term, it costs less to drive a used car instead of a new one, according to the Edmunds website. Pricing is an obvious benefit of a used car purchase, although several disadvantages may also exist. From warranty coverage to prior owner history, a used car may not be your best bet.
Price and Equity
Price and equity are an immediate advantage of a used car purchase. A vehicle suffers its biggest dip in depreciation the moment you drive it off the lot as a new car, a disadvantage the car's original owner already suffered. However, paying too much for a used car or carrying over money into its loan can prove just as much of a disadvantage. Researching price, successfully negotiating and being financially responsible when taking out the vehicle's loan, such as not carrying over money or adding unnecessary add-ons, keeps the vehicle's value in line with depreciation.
Warranty
Whether or not a warranty comes with your used car purchase is either a benefit or a disadvantage. Even if you are the used car's third owner, you can take advantage of any warranty that still exists under the manufacturer's coverage period. If not, you can purchase an extended warranty, but prices start around $1,000 and rise from there. You may not be getting the price break you really want when comparing the price of the car with a purchased warranty to one that already has extra coverage included.
Loan Term and Rate
Another advantage of a used car purchase is that you can pay off the vehicle's loan and own it outright sooner than you can a new car because of lower payments and less borrowed money. At the same time, the used car you choose may cost more than a new one, which can result in you paying more money back over the long term. Interest rates for used cars are higher than those for new. Use an auto loan calculator (the Edmunds website offers one) to fully gauge your payback amount.
Service Schedule
Your service schedule also determines whether or not the used car purchase is advantageous or disadvantageous. The previous owner's service history plays a big role in your vehicle's expected reliability, so ensure the seller can prove the vehicle's maintenance history. In addition, most vehicles require their most expensive services every 30,000 miles or at around 100,000 miles. Ensure you can verify the car's previous history and check the prices of upcoming services and maintenance requirements. Large services can exceed $500, so consider upcoming services in your price.
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