When buying a car, the biggest decision you have to make is whether to buy a new car or a used car. Figuring out which works best for you requires considering your goals, lifestyle, and what you can afford.
Here are some things to consider as you shop for a car:
When you buy a car with financing, one of the most important things to consider is the interest charge. A used car normally comes with a higher interest rate than a new car.
If you buy a used car for $12,000 with a 3.5% interest rate, your total cost on a 60-month loan might be $13,098. On the other hand, you might be able to get a 1.9% interest rate on a new loan, for a total cost of $18,883. With the new car loan, you are paying $883 in interest, while you pay $1,098 in interest with the used car — even though the new car is more expensive.
Many dealers have relationships with lenders, or might even have wholly owned lenders. There’s a focus on selling new cars, so an incentive like a lower interest rate can make sense.
If you want to get a better deal on financing, a new car is usually the way to go.
It seems clear that buying a new car results in higher insurance rates. After all, a new car is usually more expensive and the replacement cost is higher. That means higher premiums. Plus, if you finance your car purchase, the lender is likely to require you to purchase comprehensive coverage, instead of just settling for collision coverage. If you can afford to buy a used car without financing, you might not need to pay for higher coverage, and that means savings over time.
On the other hand, there are some times when a used car can cost more when it comes to insurance coverage. Depending on whether you finance the car, how old it is, and a lack of safety features, you might be surprised to discover that a used car can come with higher premiums. Compare costs, or talk to a knowledgeable insurance agent about the realities of insurance before making your choice.