#BreakingItDown - Used Vs New Cars - Which One Should You Buy?

CompareHero.my Team

CompareHero.my Team

Last updated 05 May, 2021

Buying a car is one of the most expensive purchases you will ever make in your life. Before sealing the deal, you have to consider several factors, including whether you should buy a new or used car. In this article, we break down the pros and cons of each type to help you make the right decision. Read more to find out.

One of the biggest dilemmas that car buyers face is whether to purchase a new or used car. Doesn’t matter if it’s a downsize, upsize, update or their very first purchase, the dilemma is felt equally across the board. Is one ultimately and inherently better than the other? Or is it the case of different strokes for different folks? 

The truth is there’s no right or wrong answer because it really goes down to what best suits your wants and needs, and either way you can’t go wrong. 

But on the other hand, there are several clear distinct differences between used and new cars that could ultimately affect your bottom line. Some of these variations range from prices, financing, performance to reliability and insurance costs.   

Similar to other big purchases, the objective is to walk away knowing you sealed the best possible investment, with as little cost as possible. 

So let’s do a rundown on the pros and cons of buying new versus old cars. 

The perks of buying a new car

The biggest advantage of buying a new car is what you’d expect - having more certainty over what you’re getting yourself into. 

Since no one has ever used it before and it’s fresh out of the showroom, there’s no untold horror stories associated with a new car, and we’re pretty certain that the car wouldn’t experience many breakdowns over the course of its first one to three years. This is good news for your pocket, too, as it means money will likely be spent on maintaining the car than repairing it. 

You can also rest assured knowing that your car is operating with the newest cutting-edge technology, meaning its parts are more fuel-efficient, which can only be better for the environment and your wallet. Who doesn’t like a car with better gas mileage and lower emissions?

You’ll receive the great benefit of having warranty (though some used car dealers have this too depending on who you deal with), and because it’s brand new, it won’t come with wonky smells and interior stains and, of course, no visible wear and tear. You can also hook up your phone and other devices to the car with more ease.

But aside from the cosmetic benefits, there is also the possibility that banks can offer to finance your car at a lower interest rate; a plus for you because this reduces the amount of interest you pay over the life of the loan and gives you a lower monthly payment. 

Related: #BreakingItDown – Don’t Make These 9 Mistakes When Buying A Car

The downsides of buying a new car

The biggest issue with new cars is that you lose money on it as soon as you drive it off the lot.

From our research, of all the costs, depreciation - a measure of how quickly a car loses value - is the biggest cost of car ownership, accounting for more than a third of the average annual cost. 

That reason alone is enough to convince you that depreciation is a big red flag. Imagine the boatloads of cash you could save! In fact, depreciation takes the biggest hit in the first two to three years, and you’ll feel it the most when you sell or trade in your car.

But of course this won’t matter that much if you were to buy a used car or keep your car for a longer duration,  but for many people depreciation is a compelling enough reason to deter buying new. 

From a money perspective,  buying a new car doesn’t make that much sense unless you have money you do not mind losing. 

The overall costing is generally higher for new cars. When you buy a new car, you are required to pay service and tax fees, two things that could have been avoided with a used car. It also comes with a higher upfront price tag and monthly payments. Of course financing can make the purchase more economical, but even then, it’s important to ensure that the monthly payments are feasible enough for you. 

Similarly, the car insurance premium could also be higher with a new car. By the way, if you are on the lookout for car insurance or would like to renew yours, apply through us now to stand a chance to win a Petronas gift card worth up to RM300.  

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Lastly, because a new car means a brand new model, there is some unknown reliability for that model year since there is no previous record over its performance. You could avoid such problems with used cars because they are tried and tested. 

Advantages of a used car

If depreciation was your biggest issue with new cars, then one of the most significant advantages of buying a used car is letting someone else take the depreciation hit. After all, less depreciation equals a better investment. You may also be able to sell it for nearly the same amount you paid! 

We’ll be honest, buying a used car makes more sense for your wallet if finances is your main concern and priority. For one, you’ll get to avoid the unnecessary fees and taxes. For example if you’re buying privately, you can automatically skip out on the service fees. Overall, we found out that on average, used car prices are 50% lower than new cars.

Undeniably, the interest rates for new cars tend to be slightly lower than they are for used cars, just by virtue of its nature. But you can get favourable terms on your hire purchase loan by being a bit more savvy with your research and approach. First, you can choose to pay the loan back sooner - for instance, paying it back in two years instead of five years. If that’s not possible, then just enjoy the glory of paying lower monthly payments. The other option is to pay your used car back in cash. 

Similar to financing, car insurance will also depend on the age of your car; but the good news is insurance for used cars tend to be cheaper! Car insurance premiums are calculated based on many factors, one of which is the market value of the vehicle. Thus, a cheaper car (by nature of being used) would translate to cheaper insurance.

Related: #WhatIWishIKnew – What Factors To Consider Before Buying Car Insurance? We Asked A Financial Expert

Disadvantages of used cars

It’s not made to order so you can’t be too picky. If you like having the option of picking your colour and the features etc., then a used car won’t have any of that for you. You get what you pay for as is. So if the car has a pretty crappy wiper, you’ll have to deal with that. Of course, some dealers, like Carsome, try to help you get the most out of your car-buying experience as dealers like them specialise in selling used cars. 

Used cars are usually sold as “as is,” meaning they may or may not come with warranty - some do, many don’t. The problem with this is any issue that arises out of your purchase is your sole responsibility. For example, if your battery dies after one month, you have to buy a new one which can be costly. 

Reliability is another big issue with used cars. Old technology not only means it’s less reliable and savvy, it could also mean that it’s less safe because the car is not up-to-date with the latest safety regulations. For context, as safety laws are reviewed and improved each year, car manufacturers are forced to comply by improving safety features, and older cars don’t come with these new improvements. Additionally, a used car – depending on how old it is – may not be fuel-efficient. This is not only bad for your wallet but for the environment as well. 

When you purchase a used car, you may not be able to find reliable financing options - it may be super limited or is extremely expensive. Used cars also come with potentially high repair costs. It may not come with basic maintenance packages: for example, you can’t get your oil changed for free at certain checkpoints. Other than that, used cars could potentially experience more breakdowns than a new car.

Lastly, this may not be a big red flag for many but not knowing who the previous owner could be a problem for you. The previous owner could have been a responsible older man or a rowdy teenager who never got the oil changed. Depending on the dealer, it may or may not be possible to know who owned it before you. This matters because you want to make sure that you’re not inheriting a worn-out car and that it was in responsible and safe hands before you.

Related: #BreakingItDown – Here Are The 5 Things You Should Know Before Changing Cars

Should I buy a new or used car? 

It depends on what you’re prioritising and what factor is the most important to you. If money isn’t a big concern, then focusing on the brand and features could be another priority. But if your money is the biggest issue you have, then it’s important to factor in all the different costs like insurance, financing, upfront cost, depreciation, maintenance etc. 

It’s worth emphasising again that depreciation is a silent killer to your automotive budget - it doesn’t seem obvious but it cuts a large dent into your budget and forces you to lose money that you could have saved for something else.

We hope you found this article helpful!

Whether you are a first-time or seasoned buyer, the process of buying a car can be complicated if you don’t know the industry that well. The #BreakingItDown series is all about addressing this problem. Stay tuned for more content.

The CompareHero.my team is comprised of many talented individuals, sharing their knowledge, experiences and research to help others make better financial decisions.


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