New Cars vs. Used Cars

new vs used

Q: I need a new set of wheels and I’m wondering if it’s better to spring for a new vehicle or to go the cheaper route and buy a used vehicle. What do I need to know about each kind of purchase? 

A: Any decision surrounding a purchase as large as a car needs to be made with careful research and consideration. There are pros and cons on both sides of the fence here. Your final decision, though, will depend on your budget, personal preferences and particular needs. 

To make your job a little easier, we’ve outlined the pros and cons of each purchase type below. 

Pros of new cars 

  • Status symbol. The strongest allure of owning a new vehicle is obviously its attractiveness. You don’t hear many people bragging about their just-purchased used car or posting pictures of it all over their social media pages.
  • Fewer repairs. With a new vehicle, you can assume you won’t be dealing with major repairs or maintenance issues for a while.
  • Easier shopping. When everything is completely new, there’s no need to drag your prospective new car to the mechanic. It’s also easier to determine a fair price for the car.
  • More financing options. If you’re considering a new car, you’ll be offered attractive incentives like cash rebates from the carmaker and better interest rates from the lender.
  • Improved technology. Cars are getting more updates, and recent models have incredibly convenient technology, such as programmable settings, autonomous emergency braking, adaptive cruise control, blind spot monitoring, built-in Wi-Fi hotspots or lane-departure warnings.
  • Automaker’s guarantee. All new cars come with warranty coverage for their first three years or 36,000 miles, whichever comes first.

Cons of new cars

  • Price. Of course, a new car is going to be more expensive. But it’s not just the price that puts you at a disadvantage – it’s the fact that you can get a perfectly comparable vehicle for much less.
  • Depreciation. New cars go down in value as soon as they leave the lot. In fact, a new car can lose 20% of its value once it’s owned. At the end of the first year of ownership, your new car can drop another 10% thanks to the mileage you’ve clocked and the wear and tear.  You’ll feel this loss if you try to sell your car a few years down the line.
  • Higher premiums. Insurance companies charge more for newer vehicles. You’re also more likely to want the maximum coverage and protection when every dent in your new car is enough to bring you to tears.

Pros of used cars

  • Price tag. Let’s be honest here: No one would think of buying a used car if it weren’t for the savings. And those savings can be enormous! Consider this: according to the National Automobile Dealers Association (NADA), the average American own 13 cars in their lifetime. A typical new car costs $30,000.  If each car that a person owns throughout their life is just 3 years old and costs $20,000, the driver can save $130,000 on car costs throughout their life!
  • Less depreciation. The savings on a used car don’t end at the dealer’s lot. With the previous owner absorbing the initial depreciation on the car during its first few years of ownership, your vehicle will only experience a minimal drop in price. You can save yourself thousands of dollars in loss if you want to sell your car a few years down the line.  
  • Lower insurance premiums. With your car weighing in at a lower value, your monthly insurance premiums will be more manageable. You can also opt out of full protection when your car isn’t a new model anyway.
  • Lower interest. If you choose to finance a used car instead of a new one, you’ll likely have a higher interest rate. However, since the loan amount is lower, you’ll save in total interest payments over the life of the loan.
  • Predictability. When purchasing a just-released car, you never know what issues might crop up in the future. But, when you’re buying a model that’s been around for a few years, you’ll have a wealth of research and ratings available on your car so you’ll know what to expect.

Cons of used cars 

  • Complicated purchase. You won’t be able to walk into a lot and walk out with your new car an hour later. With a used vehicle, you’ll want to get a vehicle history report, ask to see the vehicle’s service records and bring it to a mechanic for a professional inspection.
  • Fewer choices. When buying pre-owned, you don’t get to be picky about things like colors, upgrades and features. If you find something in your price range that meets most of your specifications, you grab it!
  • Risk. Even if you do your homework well, you still run the risk of walking out with a lemon when you buy a used car.

It’s a multi-faceted decision, but by carefully weighing your options and personal preferences, you’ll drive off of the dealer’s lot with a real winner! 

Whether you choose to go new or previously-owned, don’t forget to call, click, or stop by and any of our five Mutual Credit Union locations to hear all about our new and used auto loans.

Your Turn: Did you buy your car new or pre-owned? Are you happy with your decision? Tell us all about it in the comments below.

 

SOURCES:

https://www.nerdwallet.com/blog/loans/compare-costs-buying-new-car-vs-used/

https://www.autotrader.com/car-shopping/4-questions-help-you-decide-new-or-used-car-167808

https://cars.usnews.com/cars-trucks/new-cars-vs-used-cars

https://www.iwillteachyoutoberich.com/blog/cost-vs-value-should-you-buy-a-new-or-used-car/

Don’t Get Dealed! 6 Ways To Avoid Getting ‘Taken In’ By A Car Dealer

 

  1. Do your research before visiting the dealer. Find out which kind of vehicle you want, determine your budget, and read up on customers’ reviews of your chosen car. If you walk in knowing nothing, the dealer will quickly take advantage of your naivety.
  2. Be ambiguous. Don’t give the impression that you’re definitely buying through this dealer or they won’t be trying their hardest to give you the best deal. You can even drop hints that you’ve already found several vehicles that you are seriously considering.
  3. Don’t agree to any “extras” for protection. Etching, rustproofing and paint-and-fabric protection aren’t worth much – and they definitely aren’t worth what they charge you for it!
  4. If you have good credit, expect an interest rate between 1.49% and 3.49%. Don’t fall for anything higher or it means the dealer is just hiking up the rate at your expense.
  5. Don’t automatically agree to all damage waivers you’re offered. Many are unnecessary and provide insufficient coverage. Do careful research on each service before signing up for it.
  6. Visit Mutual CU for financing, no matter how great a deal may sound.

Your Turn: Did you ever get taken for a ride by a car salesman or put a stop to their attempts? Share your story with us in the comments!

Auto Loans: Credit Unions Vs. Banks

Need a car but can’t pay cash? You have three choices: Borrow from the dealer or manufacturer’s financing company, borrow from a bank, or borrow from a credit union (unless Uncle Bob is willing to finance you, but who wants the “strings” that go along with that?). Each method has advantages and disadvantages – but if you can qualify, the way to go is usually with a credit union.

Interest rates are still near historic lows. If you are going to borrow money for a car, there’s never been a better time.

 Structural advantages of credit unions

Credit unions are known for having lower fees and interest rates than banks and other finance companies. The advantage is in the ownership structure: The owners of banks and the majority of consumer finance companies are stockholders – not you. That means every product or service they provide has but one real objective: to make money for their shareholders, while not alienating you so much that you take your deposits and future business somewhere else.

The owners of credit unions, on the other hand, are members, not shareholders. That means profits are distributed among its members in the form of dividends and in the form of lower fees. Every dime that would have gone to Wall Street, in the case of a credit union car loan, stays with credit union members. And you, as the borrower, get to keep a chunk of it in the form of lower interest rates and fees.

 Advantage to the consumer

With traditional stock ownership, there is always an adversarial relationship between the bank and the customer. Banks serve the stockholders. The credit union exists, however, to serve members. Think of it: If the credit union didn’t serve member interests, the members could simply replace the management team until they found managers who are more responsive to the needs of the membership.

 Advantages of banks

Credit unions tend to be smaller than banks, with a limited membership. You have to meet the criteria for membership to be able to join and get a loan. Luckily, it’s easy to become a member of Mutual CU. (If you live, work, worship, attend school or volunteer in one of our seven covered counties, you’re already qualified!) sometimes, banks have more up to date ways to access loans and banking products. Luckily, Mutual CU has a full suite of digital products like online banking and a mobile app so Mutual CU goes wherever you do!

 Disadvantages of banks

As mentioned, banks have a substantial cost of overhead, in the form of their many branches, expansive operations and, of course, investor profits. Some very large banks have good economies of scale and can minimize the impact of their overhead on consumer fees. But no bank is going to want to cut into shareholder profits if they can help it.

 Dealer financing

The last option is, of course, dealer financing. These deals can be excellent on new cars (0% or 1%  financing is tough to beat), but the picture isn’t as rosy for older cars, or for those who have less-than-stellar credit.

If you go the dealer financing route, take a look at the fine print: You need a car loan with no prepayment penalty. This means you are free to pay off the loan balance at any time, without any added fees or interest tacked on. The higher the interest rate, the more important this is.

Also be on the lookout for dealer add-ons that cost more there than at the credit union where you can get the same types of warranties, gap and other insurance for substantially less.

 The lease option

The final option, of course, is leasing rather than buying. A lease is essentially a contract to rent the car for a period of time and to turn the car back in at the end of that contract (the lease). Lease payments tend to be lower than loan payments because when a loan is paid, you keep the car! The loan is buying the whole car, and not just the depreciation it has during the first few years.

In the long run, the consumer is almost always better off buying a car outright, rather than leasing. With a car loan, the pain of payments is over in one to four years, but you can be driving the car for 10 years or more! With a car lease, though, your payments never stop, and you never own the car.

Still not sure what to do? Contact us to request your free car buying guide; and when you’re ready, we can get you pre-approved to shop for your new set of wheels!

Buying a Car?

An automobile is a major investment. Just think about it: In the last 10 years, have you bought anything that costs more than a car? A house or your kid’s education, maybe. Yet, unlike a house, a car is not going to appreciate in value; and unlike an education, an SUV is not going to increase your offspring’s earning potential.

A car isn’t an investment after all, because you’re not going to receive a return on it. It’s an expense, and the best you can do is to get the maximum use and pleasure from the money you spend. Getting the most out of your car is a matter of careful maintenance. Getting the most out of your money is a matter of getting a good price on the car and a good deal on the related financing.

Negotiating a good price on your car can be stressful, but arranging for a good deal on your loan might not have to be. When they think of car loans, most people think of banks and dealer financing – but your credit union may offer the best, most flexible terms and the fastest loan process that’s available to you:

• Before you go shopping, come to your credit union to get pre-approved for a loan. Preapproval will mean you have one less thing to worry about when you find the vehicle you want.

• The rates that your credit union offers on auto loans are probably lower than those that are offered by most banks and car dealerships in your area. An additional discount on the rate is available if you set up a direct loan payment.

• Refinancing an existing loan on the car you currently drive could lower your rate and monthly payment, putting more money in your pocket – a good thing at any time, but especially in a troubled economy.