Advantages of Buying a Used Car
The advantages of buying a used car include lower car insurance rates, less depreciation, and fewer dealer fees.
Written by Shannon Fitzgerald
Reviewed by Jessa Claeys
Some of the common benefits of buying a used car include lower purchase price and
car insurance
costs, less depreciation, and fewer dealer fees. When going through the car-buying process, you may find yourself torn—should you go for a new vehicle or opt for a pre-owned car instead? While both options have pros and cons, purchasing an older, used model may end up saving you quite a bit of money.
Here are some advantages drivers who buy used cars often enjoy.
Used cars (still) cost less than new cars
Yes, ongoing microchip shortages and global supply chain issues have caused huge price elevations in both the used and new car markets. But as new vehicle production and inventory slowly recover, used car prices are going down—much more steadily than new car prices.
In fact, according to a Consumer Price Index report in November 2022, used car prices have fallen over 3% from where they were a year prior. This might not seem like much considering used car prices are still 50% higher than they were pre-pandemic, but there is hope that used car prices have peaked.
New car prices, however, likely have not. J.D. Power analyses report that new car prices are still up by 6.3% in 2022 compared to 2021.
Researchers from J.P. Morgan predict that used car prices will continue to decline by 10% to 20% in 2023, compared to a 2.5% to 5% decline for new cars. In the meantime, experts recommend opting for older model years (no newer than 2019) and improving your credit score as much as possible to best optimize your purchase price and monthly payments.
Unfortunately, as the Federal Reserve raises interest rates, expensive
car loans
will become another financial hurdle for both new and used car buyers. MORE: What is a good credit score for a car loan?
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Used cars can be more accessible than new cars
One of the main reasons the demand for used cars—and consequently used car prices—have gone up is that the supply of new cars is short, turning more potential buyers to the used car lot instead. While this has inevitably resulted in a lower used car supply, shopping used still gives you greater accessibility to vehicle and price options than shopping new.
There are also more ways to shop for a used vehicle than a new one. Here are several:
- New car dealership—most dealers sell a single brand of new cars alongside a variety of used cars (think your localHondalot). Financing options are typically offered on-site, and many of their vehicles may be certified pre-owned (CPO) cars.
- Independent used car dealers—these sellers have no connection to a specific carmaker, so the inventory has greater variety. That said, you won’t likely find CPO cars, but prices tend to run lower.
- “Buy here pay here” (BHPH) dealership—BHPH dealers act as a lender for used cars you purchase through them, rather than offering third-party financing through a bank or credit union. Though interest rates run high with BHPH dealers, they almost always approve car loans to interested buyers, making them a good option if you want to buy a car but have bad credit.
- Private sellers—you can always opt for a used car from the local classifieds or from a sign you see posted on a car window. Just make sure you get apre-purchase inspectiontocheck that you’re not buying a lemon.
MORE: 7 things to look for when buying a used car
You’ll get lower used car insurance rates
Though your insurance costs are determined by several factors, including your age and location, you’ll generally find that premiums for used vehicles are lower than premiums for brand-new cars.
Why? Because insurance companies factor the vehicle’s value into insurance rates. Since a used model has less value than its newest version in most cases, car insurance for a used car will therefore come at a lower price, too.
Used cars also benefit from not needing as much insurance coverage as new cars, which cuts costs further. For example, a brand new
BMW X5
is worth upwards of $61,000, which makes protecting one with gap insurance
or new car replacement coverage
a very good idea. A 2007 BMW X5
, on the other hand, is worth around $6,000 and wouldn’t need as much protection. Pro Tip Your insurance rates depend on multiple factors—the insurer is one of them. To find the best premium out there for you, it’s good practice tocompare quotesfrom at least three different companies.
Used vehicles have less depreciation
Another perk of buying used is that the previous owner has already absorbed the bulk of the vehicle’s depreciation.
A new car’s value depreciates by about 20% the second it’s driven off the car lot. By the end of the first year, it will lose another 10% in value. After this initial year of ownership, depreciation slows, leaving used car buyers with much less depreciation to worry about and a more stable
car loan-to-value ratio
. A used car’s resale value also benefits from its lower depreciation, since you’ll most likely receive more of your investment back than a new car buyer would.
You’ll pay less in taxes and dealer fees
You don’t normally have to pay destination fees for a used car at the dealership like you may have to do with a new car. Because a used car is generally cheaper than a new car, you tend to spend less on state and local sales taxes, too.
Of course,
vehicle registration
, emissions testing, and/or state inspection fees will apply whether you’re buying used or off the showroom floor. But as a whole, used cars have much fewer “hidden” costs to potentially surprise you. Many used cars include a warranty
Buying used doesn’t always mean that you’re missing out on the warranty coverage new cars benefit from. In fact, many certified pre-owned vehicles come with an extended warranty, which ensures defective components will be repaired or replaced by a brand-certified mechanic.
Depending on how old the model is and where you’re buying it from, there’s also a chance that the original manufacturer’s warranty is still active. Your seller may just need to pay a fee to transfer it over.
Pro Tip Alongside extended warranties, most CPOs come with avehicle history report from Carfax. To give you greater peace of mind no matter where you’re shopping, always ask your seller if they can provide one or secure one on your own.
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When is it better to buy a new car instead of a used car?
If you’re looking for a car with a specific build, color, and/or tech, you may be better off customizing a new vehicle to your preferences. New cars also tend to have better fuel efficiency and safety ratings than older models, and banks usually offer more affordable financing options.
What do I need to check before buying a used car?
Before
buying a used car
, be sure to obtain a vehicle history report (either on your own or from your seller) and get a pre-purchase inspection performed by a reputable mechanic. Essentially, you’ll want to make sure your vehicle’s exterior and interior are functional and free from damage (don’t forget to inspect the tire tread). Then, you’ll want to get a look under the car and under the hood to make sure there are no leaks, your engine is clean, and your battery isn’t corroded. It’s always a good call to give your used car a
proper test drive
if possible, too!Reduce your monthly car payments in minutes?
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