When you are looking to buy a car, choosing between a new or used vehicle is tricky. Brand new cars have that special smell and look great, but used cars cost less and offer similar road performance.
The benefits of buying a used car, like the lower cost and quicker loan payoff, are important; however, the potential unreliability of a used car and lack of used vehicle options is a deterrent to buying pre-owned. Consider the pros and cons of buying a used car so that when you are ready to head to the credit union to apply for your auto loan, you know exactly what you are looking for.
Pros of Buying a Used Car
There are several benefits to buying a pre-owned vehicle. These pros include lower prices, smaller loan amounts, and the ability to pay off your auto loan quicker than with a new vehicle.
Lower Car Prices
Most used cars cost less than their new counterparts. New cars depreciate or lose their value by 20% in the first year and more than 50% by four years. This means that if you buy a 3 to 4-year-old car, you are paying closer to the car’s residual worth than if you bought it new.
Additionally, used cars sold by the owner are sometimes priced much lower than their value. This is due to the owner needing to sell the car quickly or being unaware of what the car may be worth. This equals a lower-priced vehicle for you.
Lower prices mean smaller loan amounts. For many used cars, you can put down a substantial down payment or even pay cash for the entire purchase, which lowers the amount of money you need to borrow. Smaller loans mean you don’t spend a lot of money in interest over the life of the loan, which helps you save money.
In addition to a small loan amount, when you buy a used car, you may be able to pay off your auto loan in a shorter period. This is beneficial because longer-term loans mean higher APRs and paying more than the car is worth.
Lower Insurance Premiums
Older cars typically mean lower car insurance rates. Although the cost of car insurance depends on several factors, it will be less for most used cars than for brand new vehicles.
Cons of Buying a Used Car
While there are benefits to buying a used car, there are also a few cons that car buyers should consider. These include buying an unreliable vehicle, missing out on a warranty, and higher interest rates at the bank.
Unfortunately, pre-owned cars can be unreliable, especially compared to brand new cars. The older the car, the more likely it needs to be taken in for repairs or has been damaged in some way by the previous owner. Make sure to obtain a vehicle history report for any used car that you want to purchase. A history report tells you about any accidents the car was involved in, the service repairs performed on the vehicle, and the title status of the car. Have any pre-owned car that you consider buying examined by a mechanic before purchase.
Warranties protect you in the case of malfunctioning parts installed by the manufacturer. Factory warranties may still exist on used cars; however, when buying from a private party seller, it is something you will need to check out for yourself. Used car dealerships may offer warranties as well. Read the fine print to determine just what they cover. In addition, you may purchase an extended warranty, but you need to factor this cost into the cost of the vehicle.
There are limited choices when it comes to buying used. Some superficial elements, like car color, might not affect your choice to buy used; however, there is still a limit of the make and model options available that affect your desire to purchase a used car. This is only a slight disadvantage of buying a pre-owned vehicle.
Higher Interest Rates
Unfortunately, used cars come with higher interest rate loans. Borrowers with lower credit often apply for used-car loans, and used-car values are hard to pin down, which poses a greater risk for lenders. This means APRs on used-car loans are higher than on new cars. Although rates tend to be higher than on brand new auto loans, they are reasonable. T&I Credit union currently offers used-auto loans with APRs as low as 2.99% for up to 60 months for those who qualify.
Should You Buy a Used Car?
There are several advantages for car owners who buy used cars. Lower cost, lower loan amounts, and lower insurance premiums are great benefits that come with purchasing a pre-owned vehicle.
The cons of buying a used car should factor into your decision. Losing out on the car’s warranty and dealing with reliability issues may cause you hesitation in purchasing a used car. One option is to look at certified pre-owned vehicles, which include inspections and warranties, rather than cars sold by private parties. This way, you reap the benefits of buying a used car but avoid some of the cons.
Apply for a Personal or Auto Loan
When you are ready to purchase a new or used vehicle, speak with a Loan Officer at T&I Credit Union about new and used auto loans. Call (248) 397-9456 to discuss our rates and application process today.