You probably heard that used cars come with a lot of hidden problems. But, purchasing a used car is the best financial decision you can make as long as you do your homework. Many people tend to focus on new cars due to updated features, reliability, good looks, etc. However, the cost of buying a new car vs. a used car cannot even be compared. Learn about the reasons to buy a used car and what makes used cars superior to new ones from a financial standpoint.
Used cars have less value than new cars because you buy them at a discount after they have depreciated. Whether you are buying a used car using cash or financing the purchase with a car loan, the car will cost you less money. In addition, used cars are superior because they depreciate at a much lower rate compared to new cars.
Being cheap means that your car insurance will also cost you less money. The fees and charges you pay to buy a used car are much lower compared to new cars. If you are serious about your finances, you can save enough money and buy a used car with cash. In other words, used cars are financially affordable from every angle.
For more details on the reasons to buy a used car, keep reading.
Things to do before buying a used car
- If you are buying a used car but are worried about defects and hidden problems, consider buying certified pre-owned (CPO) cars. The certification shows that they meet the manufacturer’s standards which will help in appeasing your mind. In addition, they might come with some form of guarantee which is a bonus that many used cars do not have. Most dealerships have different options when it comes to CPO cars. So, make sure that you explore your options either in person or online.
- There are times when you will buy a used car from websites such as Craigslist. In this case, you will not have the trust and guarantee you can get if you buy the car from a dealership. Does the car have mechanical problems? You will never know unless you are a mechanic. For this reason, you must always take the car to a trusted mechanic to make sure that the car does not have problems that will cost you a ton of money down the road.
- Before buying a used car from someone, make sure they own it 100% to avoid legal battles. For example, if the owner of the car has not finished paying the car loan, or used the car as collateral for a given purchase, you will end up in financial trouble by buying this car. The bank or anyone who holds a lien on the car can take it from you at any time. So, to protect yourself from legal battles and loss of capital, buy used cars only when they have clean titles with no liens on them.
Here are the top 6 good reasons to buy a used car
There are many reasons to buy a used car. Some people prefer low-cost insurance, cars adapted to their climate, cars with a proven history, borrowing less money, etc. Others, however, prefer paying less in fees, charges, and closing costs. The following are the top six reasons, you should buy a used car over a new one. As long as you do your homework, you will never be disappointed about buying a used car.
1. Used cars do not depreciate fast
Depreciation is one of the biggest setbacks for brand-new cars. By default, new cars depreciate up to 20% during their first year and between 10-15% every year for the following 4 years. So, If you are buying a 5-year used car, you will buy it at around 40- 50 percent cheaper.
The funny thing is that if you buy a new car from a dealership and decide to sell the same car to the same dealership on the same day; they will not give you what you paid for it. You will probably lose more than 10% of the original price. Fast depreciation of cars starts the moment you buy the car.
Used cars, however, do not depreciate that fast. This is because fast depreciation only occurs during the first 5 to six years. Every other year, the value of the car goes down gradually.
That is why you get more value when you buy a used car. If the previous owner took good care of the car, it will look like new and drive like new. But you will buy it at 40 to 50% discount. This huge discount is what makes a used car better than any new car.
Related: Why is it a bad idea to buy a new car?
2. A used car will cost you less money in auto insurance
By default, the higher the value of the car, the more expensive the insurance will be. This is because in case you get into an accident, the insurance company will pay a lot of money to cover the car. Which justifies why you pay more for car insurance. You will also need to purchase full coverage for a new car or close to being a new car. This is because you have more to lose if the car gets into an accident. Your lender will also require full coverage in case you are financing the purchase with a car loan.
Used cars on the contrary cost less money. As the price of the vehicle goes lower, the insurance also goes lower. That is the insurance provider will spend less to cover the vehicle. You will probably not even buy full coverage since the value of the vehicle is lower(assuming you paid with cash). Most people with older cars buy liability insurance. This is a financially sound decision because it does not make sense to pay full coverage on a $3,000 car. The less money you pay for car insurance, the more money you save in the long run.
On top of the value of the car, there are other factors that affect your auto insurance. Your age, zip code, driving record, mileage of the car, and many more will all affect the cost of your car insurance. For example, younger drivers with no driving experience are more prone to accidents than adults. So, they pay more for car insurance.
Even if you are planning to purchase liability coverage, you should always compare rates. Insurance companies use different algorithms and apply different weights to the information you provide. This results in different rates from one insurance provider to another.
You should also consider other discounts that you qualify for such as being a student, veteran, active duty member, choosing auto pay, or choosing electronics communications. All these factors will help you lower the cost of your auto insurance.
To learn more on how to find the best car insurance, read the following article.
More: 7 tips on how to find the best car insurance
3. Used cars are cheaper
What makes used cars great options is that they are cheaper compared to new cars. Depending on the year or make of the car, you should pay much lower than what you could have paid if the car was new. This is because new cars depreciate much faster in their first 5 to 6 years.
You can easily purchase a 5-year car at a 40% discount or more. For example, a $20,000 car can cost you around $12,000 or less, five years later. The fast depreciation of new cars makes used cars affordable. Another reason to buy a used car is that even if they are used, you can find a used car that looks and drives like new.
For example, there are people who take great care of their cars. So, by the time they are selling their used cars, the cars only have a single owner and the reason they are selling the car is that they want to upgrade or downgrade the car. Finding such a car is like finding a gold mine.
4. You will not take out an expensive car loan to buy a used car
The truth about making expensive purchases such as a car is that there are not that many people with $20,000 or $30,000 lying around. So, most people finance their car purchases with car loans. This is because you rely on the lender to cover the purchase for you in exchange for a small down payment and paying interest for the duration of the loan. Of course, you must also pay the principal on top of these extra charges.
Since used cars have depreciated already, they cost less money. This means that you will borrow less money from your bank to buy the car. Borrowing less money translates to lower interest charges and low monthly payments. As a result, the car will cost you less money by the time it is fully paid off.
You might also like: How to save money for a car: A complete guide
5. You will have peace of mind
When you buy a used car, you usually get to know the historical performance of the car. You can also know what happened to the car such as accidents, ownership, the status of the title, mechanical issues, etc., which is vital to you as a buyer.
For example, if the car has been in an accident, you will know ahead of time before making the purchase. That is you will know the extent of the accident and the repair conducted to bring the car back to normal health. In case you need to conduct a history search of the car, there are many online websites that can give you that information right away. Most of the time, you will only need the vehicle identification number(VIN). Start with websites like AutoCheck or Carfax. All of them will offer you detailed information about the car’s history.
Knowing where the car has been will give you peace of mind. Even if there is a problem with the car, you will know this information ahead of time. No surprises or hidden problems.
6. You will pay fewer fees and charges
One of the good reasons to buy a used one is that you pay fewer fees and charges. Since used cars are cheaper than new cars, the fees and charges you pay are also lower. This is because some of the fees you pay are a percentage of the total loan balance or calculated based on the value of the car.
So, by borrowing less money or paying less for the car, the fees also become less. Hence, it costs you less money compared to how much fees and charges you could have paid if you bought a new car.
7. You can avoid most fees and charges by buying the car with cash
Since used cars have less value, you can easily save money and purchase them with cash. For example, instead of buying a $5,000 car with a car loan, you can save money or raise it from friends and family to buy it with cash.
Buying a used car with cash automatically waives some of the fees. For example, when you use a car loan to finance the purchase of the car, you pay title search fees, origination fees, loan closing fees, paint protection fees, etc. Most of these fees can be waived if you pay with cash. That is the lender or the bank has nothing to lose since they are not lending you money.
