How to Choose Between a New or Used Car for an Auto Loan

There is a lot to consider when buying a car, including your budget, the type of car that suits your lifestyle and what kind of financing you may need. You might also benefit by weighing the pros and cons of buying a used or new car.

Often, opting for one over the other comes with a considerable difference in the upfront price of the vehicle. Additionally, if you plan to get an auto loan to purchase a car, you will want to determine if you should buy a new or used car ahead of time. Auto loans vary based on this factor, with loans for used cars typically charging higher interest rates.

Other factors may also sway your decision, including how long you intend to keep the car, ongoing insurance and maintenance costs, the features you need and the condition of the car you're thinking about buying.

According to Kelley Blue Book, the average cost of a new car in the U.S. stood at $48,681 in November 2022. The average cost of a used car, on the other hand, was $27,564 in the preceding month. That's a difference of over $21,000.

But the purchase cost is only part of the equation. If you're wondering how to choose between a new car or a used car, start by comparing your options across a few basic parameters, such as how much you’d pay for a comparable model and ongoing maintenance costs.

When you buy a new car, you can expect your car to come equipped with the latest technology. New cars also come with comprehensive warranties, and some manufacturers provide roadside assistance. Both offer considerable peace of mind and keep your maintenance and repair costs to a minimum.

Evaluating the benefits and drawbacks of buying a new car is important because you typically pay considerably more than you would if you purchased a used car. Besides, buying a car is possibly second only to buying a home when it comes to the money you need to spend, so the process requires due diligence.

What you can expect when you buy a used car depends largely on the car you purchase. For example, while one used car might serve you perfectly well for years on end, another might start giving you trouble much sooner. As a result, you need to ensure buying a used car that passes all the required checks.

While buying a used car comes with its fair share of advantages, there are some potential pitfalls you need to be aware of as well.

Determining if it is better to buy a new or used car requires paying attention to your specific requirements and financial situation.

• Assess your wants, needs and lifestyle. While you might want to buy a two-door sports car, it might not work well if it's the only car your family of four owns. Ideally, your car should fit into your current lifestyle. Make a short list of potential makes and models by considering your car's intended use, whether everyday commuting or recreational travel.
• Consider appearance and features. Determine if you want a hatchback, a sedan, a crossover, an SUV, a coupe or any other type of car. Then, decide on the features you want and actually need. These may include anti-lock braking, backup cameras, hands-free Bluetooth, sunroofs, climate control and navigation systems. Bear in mind that while some of these features come as a staple with new cars, that’s not necessarily the case with used cars that are a few years old.
• Determine your purchasing budget. Establish how much you can afford to pay each month toward your car loan. Once you have decided on your budget, choosing between a new and a used car might be more straightforward.
• Calculate car ownership costs. Since car ownership costs may vary considerably between new and used cars, it's important that you account for all associated ongoing costs at the very onset.

Check answers to other commonly asked questions about whether you should buy a used or new car to determine the best way forward.