Cheaper to Buy New Than Used?

new-car-dealsIt is always smarter and cheaper to buy a used car rather than buy a brand new car. Right? Not so fast.

With the agressive rebates and super low-APR loans being offered these days by most car manufacturers, it is not difficult to find cases in which buying a brand new car is actually cheaper than buying a late model used car of the very same make and model.

How can this be?

Heavy rebates and dealer discounts during short-term promotions can reduce a new vehicle’s price so much that used vehicle prices don’t have time to react and adjust. This means for a short time, during the promotional incentive period, that the price difference between new and used becomes smaller. In some cases, the new vehicle’s price actually becomes less than the used vehicle’s price, assuming a used vehicle that’s only one or two years old.

Another way this can happen is that loan interest rates can be so different between new and used car loans that it makes a big difference in overall cost. Used car loan rates are always higher than normal new-car rates — usually about 2%-3% or more. The difference is even greater when a manufacturer is offering a 0% or low-interest promotional loan rate.  Remember, there are no incentives or promotional rates on used cars — only on new cars.

Therefore, the next time you think you want to buy a late model used vehicle because you think you’ll pay less by avoiding the infamous 1st year depreciation, do yourself a favor and at least compare new-car prices for the same vehicle. You might be in for a nice surprise.

HINT: You’ll most likely find these kinds of deals on Japanese brands that hold their resale value well. This would include Honda, Acura, Mazda, and Toyota/Lexus.

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