Today is an interesting time to ask this question. The supply of used cars is low which is causing the prices of used cars to be higher than normal levels. How you respond to several pertinent questions will help you answer this question.
#1 – How long do you keep a vehicle?
This is an important question because if you keep vehicles a short period of time (3 years or less) it is a wiser decision to buy a used vehicle that already has taken the initial depreciation. If you keep your vehicle for longer periods of time (4 years or more) the vehicle will be sufficiently depreciated when it is time to trade in.
#2 – How many miles per year do you drive?
The average person drives 15,000 miles per year. If you drive equal to or less than this a new vehicle makes sense. You will be able to keep value up by keeping mileage down. If you are driving more than this a year a used car makes more sense since like the first question the initial depreciation will already be taken.
#3 – Is the vehicle still under manufacturer’s warranty?
Manufacturer’s warranty’s are typically 3 years 36,000 miles or 4 years 50,000 miles. With a new vehicle you know that if anything goes wrong the auto maker is going to cover the repairs. There are extended warranties available, but they will come at an additional cost and may not cover everything that the manufacturer does.
#4 – Unknown Factors
There are a few unknown factors that you will want to take into consideration. These include:
- Has the vehicle been serviced according to the manufacturer’s schedule?
- Has the vehicle been in any accidents?
- What is the cosmetic condition of the vehicle?
The correct answer for one individual can be different than for another. Everybody loves that new car smell, but you have to make an informed decision when making a large purchase. Happy Shopping!!
Michael Foti is a Consumer Loan Officer for Horizon Bank.