Buy New Car – or Used Car? Which is Better?

It’s an age-old question: Should I buy a brand new car, or buy a previously owned used car? Which is best? Which is smarter?

If this question were being answered just a few years ago, it would be an easy answer: Buy a good used car. You would get more for your money. You avoided the high first-year value depreciation. Although you risked buying someone else’s problems, you reduce those risks by buying a car, such as Honda or Toyota, that have high reliability and high resale values.

However, the car-buying world has changed. It has changed dramatically. Old rules don’t apply anymore.  Old advice is not valid now. It’s a completely new world.

What’s changed?

Let’s look at used cars first. Used car prices are at record highs right now. Why? There’s a big shortage of used cars that was created over the last year or so because 1) consumers cut back on buying new cars due to the bad economy; they held on to their old cars longer, and 2) the success of the the “cash for clunkers” program that took many good used cars off the road and caused them to be destroyed. The shortage has decreased supply, which has caused dealer wholesale auction prices to increase , which has caused retail prices to rise. Buying a used car now is simply more expensive than in the past.

Now, let’s look at what’s been happening with new cars. Average new-car prices have fallen dramatically recently. Why? With all the heavy incentive programs (rebates, bonus cash, loyalty bonuses, factory-to-dealer cash, 0% loans, special lease deal, free maintenance), brand new cars are the best bargains they’ve ever been. Car manufacturers and dealers are desperate for customers’ business. Deals have never been better.

The result of all this is that the actual drive-out price difference between new cars and used cars has been greatly reduced. In fact, it’s not difficult to find brand-new car prices that are actually better than prices for the same model used cars that are one or two years older. Old arguments for buying used cars are not as compelling any more.

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