Buying a car is a major commitment, especially if you take out an auto loan to help pay for it. Not only will you continue to make monthly payments for up to five years, but you'll also be entrusting your family's safety and comfort to the vehicle you choose. While there are many different ways to compare cars, selecting between a new or used model is among the first you should make to narrow your search.
Options
The financial model for buying a new automobile or a used car is very much the same. In both cases the dealer will be able to offer you a financing plan through a commercial lender, generally with a payment period between one and five years. New car dealers may work only with an automaker-approved lender, while used car dealers often have relationships with several different banks that provide auto loans. Your local commercial bank is another source of auto loans, so make sure you compare rates and policies before selecting a lender.
Benefits
Financing a new car means you'll have a brand-new automobile with a full factory warranty included in the price. This means you won't have to finance and pay interest on a dealer warranty, which might be the case with a used car. If you order a new model instead of selecting one from the lot, you'll be able to choose the options and color you prefer rather than taking your pick from a limited selection. Finally, new cars qualify for factory incentives and rebates, as well as government tax credits in the case of alternative-fuel vehicles, which can save you money over financing a used model.
Drawbacks
Financing a new car is usually more expensive than financing a similar used model. Cars tend to depreciate quickly, which means that used models don't need to have high mileage or damage to be priced thousands of dollars lower than new models that look and operate identically. If you choose to finance a new car, you may also end up paying interest on the registration fee, which wouldn't be the case with a used car that already has its license plates and registration documents.
Considerations
The price you pay to finance a new or used car is only the largest and most obvious cost associated with ownership. You'll also have to pay for insurance, which can be a major expense in its own right. New vehicles are more likely to have the latest safety features, which will reduce the cost. Some states, such as California, have laws that require you to buy full insurance for a car that you finance. This means you can't reduce the coverage you buy on a used model to save money until you own the vehicle outright.
Effects
The financial implications of buying a car include the cost of service and maintenance for as long as you own it. New models come with factory warranties that can last for as long as 10 years and cover you for many different forms of mechanical failure. Buying a used car with a shorter warranty term means you'll become financially liable for upkeep sooner. If you make on-time payments for either a new or used car, you'll improve your credit score over the course of the loan payment period.
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