FINCAR

New Car or Used? Making the Right Choice

Tuesday, 21 October 2008 18:07

It's shiny, modern in shape, fitted with all the latest accessories, and will be the envy of friends and neighbours for a time, but the shine wears off a new car quickly. It is worth considering the advantages and disadvantages carefully before deciding to buy a new car.

New cars depreciate in value immediately you drive them off the block. When buying for private use, you may not be able to claim depreciation as a tax deduction. Many people ignore this substantial cost because it is a 'notional' cost. It doesn't involve a cash outlay. It is still a cost that should be considered, however. A new car loses about 40% of its value in the first three years of its life.

On the plus side, a new car offers security. You are not buying someone else's mechanical problems, and any manufacturing faults will generally be fixed quickly and at no cost to you under the warranty. If you are borrowing to buy, interest rates may be lower for a new car. As you generally need to borrow more to cover the higher purchase cost, however, the overall interest cost is likely to be higher.

When you buy a used car, the first owner has absorbed the steepest depreciation costs. You benefit from a lower purchase cost, reduced depreciation costs, lower registration fees, and reduced insurance costs. You also save sales tax. If you buy privately, you may save on dealer commissions. Online and card yard auctions and consignment sales yards often offer great deals.

Significant risks attach to buying a used car, however. There is a higher risk of incurring costs for unwarrantied repairs. Maintenance costs increase as cars age, and you may not be able to verify that the former owner maintained the car properly. If not, major mechanical failures could be just around the corner!

New cars are generally safer than older cars, and often have wanted features that you need to fit to a used car at extra cost.

Some buyers achieve major savings while still enjoying most of the benefits of a new car by opting for a near-new demonstration model. These cars have had minimal use and are generally in new condition, but sold at heavily discounted prices.

A 'certified pre-owned' vehicle can also bridge the gap between new and used. Although pre-loved, cars sold under this program are subject to rigorous inspection, and are usually covered by a manufacturer warranty.

The decision will ultimately be based on affordability. If you do opt for a used car, be sure to have it thoroughly checked for mechanical soundness. Motoring Associations provide independent inspection services. Also, check that the seller has valid legal title. The law will generally require the seller to offer some warranty, so check the terms and investigate the seller's reputation carefully. Buying from a reputable dealer may cost a little more initially, but it may save you both money and headaches!