New Car or Used Car: A Reader Debates Which Is The Smarter Purchase

New or Used Car

Today I welcome long time reader, commentator, and now contributor J, to discuss whether it’s smarter to purchase a new car or a used car.  J is a self-storage business professional, lives in Massachusetts, and is soon to be finishing his bachelors in business administration.

J recently purchased a new ride straight off the lot (a 2008 model).  Mrs. PT and I have been debating getting a new vehicle.  We think it will be more convenient to have a safe, new, four-door for our baby, due next March.  Last month we made a failed low-ball offer on a new Tahoe.  We’ve since decided to stick with our current vehicles (which were both bought slightly used and financed at around 7%) till the baby arrives or till we find a steal of a deal.

Very Used Cars

Anyway, J and I started talking about the issue over email and he thought it might be a good idea to create a post out of our debate so YOU could join in on the discussion.  We decided to have a little fun with it as you’ll see, but I think you’ll find we equally made our cases.  Personal finance is “personal” for a reason, right?

J’s Pros For A New Car Purchase

PRO(J): Interest rate of 1.9%.
CON(PT): The rate may be low but your monthly payment is almost certainly going to be much higher. Not to mention off-the-lot depreciation. That’s money you could be using for retirement savings or your kid’s education. 🙁

PRO: 10-year, 100,000 mile powertrain warranty, 5-year, 50,000 mile bumper-to-bumper warranty (which I upgraded to 10-years, 100,000 miles)
CON: You’ll likely never recoup the cost of that extended warranty. Oh, and read the fine print on what “bumper-to-bumper” actually means.

PRO: Latest fuel efficiency built into engine.
CON: Gas prices are going to plummet as soon as we start drilling here in the U.S., release the reserves, and get those windmills up in West Texas. We’re already starting to see prices coming down. This fuel efficiency stuff is just a waste of money.

PRO: Newest safety features, such as tire pressure monitoring and electronic stability control, as well as enough airbags to make the car practically float in the water.
CON: Airbags are for whimps. More people are injured from them than protected. (okay, I just made that one up)

PRO: All the latest toys, like a built-in CD player that reads MP3’s, cruise control and stereo control right on the steering wheel, built-in XM satelite receiver (if I was willing to pay the monthly fee to activate it), and heated side mirrors (very important here in the Northeast).
CON: More “stuff” to worry about breaking. All those new gadgets are just things that won’t work in 5 years. Even though you have the warranty, you’ll still waste your life hauling that thing into the shop every month because the latest gadget is malfunctioning.

PRO: All I have to do is put in gas, change the oil every 3750 miles, and add washer fluid. The whole thing is new, after all.
CON: It’s new, sure. And your new insurance rates will reflect it. Talk about expensive.

PRO: I know how every ding, knick and scratch got there, as well as how the car has been treated from day 1.
CON: You mean you *worry* about every future ding, knick, and scratch. Aren’t there better things to care for and worry about than a hunk of metal?

PT’s Pros For A Used Car

PRO(PT): Less expensive. Reduced or non-existent payment. No new car depreciation to worry about.
CON(J): Try to remember that when the transmission goes…or the radiator…head gasket. Things just wear out over time, so add up those possible repairs (and loss of vehicle use while in shop), and weigh it against the depreciation. Example: my new car lost $8k when I drove it off the lot, but I had to sink $2500 into my paid off car in one month last July.

PRO: It’s time tested. By this point, you know it’s not a lemon (because you got the report).
CON: Very tested….on potholes, speedbumps, road construction, shopping plazas, numerous winters. Living in Massachusetts, winter is an important factor, as salt and sand wreak havoc on the underside.

PRO: Parts and systems are less complex and easy to fix yourself.
CON: Um…have you opened the hood of anything built after 2002? Shops have diagnostic computers for a really good reason these days.

PRO: Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.
CON: Can’t argue with this one, but the deductable is another story. It depends who you finance it through, Hyundai let me set my own deductable.

PRO: You can park wherever you want. No worries about dings or scratches.
CON: Nothing a touch-up pen can’t handle (get it from the dealer with the car). Other than that, how else would you add “character” to it?

PRO: No guilt for have a big debt. Deep inside you’ll know you’re getting ahead financially.
CON: Yep, it hurts. Net worth in the red. Net worth much worse if you can’t get to work!

PRO: Cassette tape player, cigarette lighter, unintentional two-tone paint job, and a free workout from the manual windows and lack of power steering. Need I say more.
CON: Believe or not, I have cassettes I like, but no longer have anything to play them on! (Not about to swap the radio though). And if you’d like a free work-out, I can help you with that. Actually you can get paid for it if you want to work for me in self-storage. Then again, you could just mow the lawn now and then…

Final Thoughts

I want to thank J for allowing me to share our discussion and for being such a good sport.  If you’d like to share your thoughts on Prime Time Money in the form of a guest post, please contact me.

While there is no one smartest way to purchase a car, here’s a good guideline you might should follow to find the smartest way for you:

If you’re going to buy new, you should generally try and pick a vehicle with high re-sale value, get it at a significant discount (I recommend for price research), finance what you can’t put down at a very low percentage, and keep it for a long time (more than 5 years).

If you decide to buy used, get to know and trust the vehicle as much as possible before buying, stick with the high re-sale models, and try to avoid taking on too much debt because it will likely be at a higher rate of interest.

What’s your opinion on the new vs used car purchase?  Which is smarter for YOU and why?  Let us know in the comments below…

Photo: by Bob Jagendorf (

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon. He created this website back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence. He uses Personal Capital to track his wealth. All the content on this blog is original and created or edited by PT.


  1. madhurij324 says

    I prefer  used car to buy I think it’s very beneficial for me i can get best model and features car in less price.  And i agree with this Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.

  2. madhurij324 says

    I prefer  used car to buy I think it’s very beneficial for me i can get best model and features car in less price.  And i agree with this Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.

  3. madhurij324 says

    I prefer  used car to buy I think it’s very beneficial for me i can get best model and features car in less price.  And i agree with this Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.

  4. madhurij324 says

    I prefer  used car to buy I think it’s very beneficial for me i can get best model and features car in less price.  And i agree with this Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.

  5. Depreciation should always be factored into the equation. Consumers planning to keep a car for fewer than five years will likely get a better value buying a used car from a recent model year, which already has that initial depreciation built into the price. But if you plan on hanging onto the car for at least five years, it’s alright to go for that temptingly priced new car. The price of a car that’s more than five model years old is largely determined by its condition, rather than the initial selling price.

  6. For me, buying a new car is much better since all the parts are fresh and are less prone to get broken.

  7. Hi,

    This blog can make people sure that which car should they buy according their financial conditions.Really great post………..

  8. Great article! I personally go with the used route. CarFax and traveling car mechanics help reduce the chances of getting a lemon.

  9. Due to the untimely demise of my vehicle this summer, I recently purchased a car. I was looking for a 3-ish years old small, fuel-efficient vehicle. The resale value of these vehicles was quite high this summer, though. There was very little difference between the price of a new and a lightly used car. Purchase incentives available for new cars made this difference almost disappear. While in general I agree with the mantra “Buying used makes financial sense,” that wasn’t true for my purchase this summer. I think it’s important for anyone looking at such a major purchase to fully investigate their individual situation when weighing the pros and cons. The used/new question doesn’t have one answer that applies to everyone all the time.

  10. You make it sound like a used car will have manual steering, manual windows, no airbags, and a cassette player. Are you buying an antique or just something 3 years old? When think of the ole days in 2005, I still remember airbags…

  11. I just picked up my new Scion tC on Tuesday. Main reasons for going new instead of used:
    – 4 used, only 1 standard in my area
    – Used prices were pretty comparable
    – Reliability in bad neighborhoods
    – No unknown history
    – I’m keeping it for 10+ years anyway
    – I really can afford it

  12. One compromise may be to buy a “floor model.” I have no idea if this is still in practice at the dealerships though. My car is over ten years old. It took a bit of time, but we found a dealership that had a test-drive model that they couldn’t sell as brand new. I still got the warranty and a practically new car without the depreciation hit.

  13. Great post and some great comments. Kust a quick note to let you know it was included as an editors pick in the 28th edition of the money hacks carnival I hosted this week.

  14. threadbndr (karla) says

    I refuse to take the depreciation hit on a new car. But I do understand the points re safety, security, etc. So what I do is buy dealer models or program cars before the end of the model year. Usually 15-25K in mileage, sometimes a bit less, not even one year old, still under warranty.

    It’s the best of both worlds. I’ve loved my last two cars.

  15. A used car is definitely the way to go for me. Even though you might have to be a little better educated about what makes a car work and how to repair some basic things (like changing the oil, air filter, checking hoses, radiator, etc.) that is good knowledge to have in general and for guys like me it usually has to be forced or else I won’t take the time to learn it.

    Also, I really don’t like paying people for the ability to buy something I might need – so I would want to buy a car outright and that can get pretty pricey if you are looking at a new car.

  16. Hey, congrats with the little one on the way!

    For us, it was our second child that got us to make the decision to upgrade from a Corolla to a mini-van. We were originally going to get a used car. Then we noticed the financing rates. We got 0.9% for a new car (this was Honda, Toyota would have been 0%). That’s almost a free loan. We get to keep the money we would have paid for used in our bank account. And we get new-car reliability. My wife has had bad experiences with used cars. You really don’t know where the car has been. Yeah, I know check Carfax. But that’s only if the problem with the car was reported. Not all problems get reported!

    And it was a good thing we went new. Since we’re moving to one income it will help to have the extra cash sitting in our savings earning interest rather than having spent it on a car. We are fortunate enough to have the money to pay the car off but now we can hold onto it in case of an emergency.

    This isn’t to knock a used car. Our original intention was to go used. In most cases it may well be the better decision to buy used. But another consideration for us is that we are going to keep our car until it no longer runs. We’re hoping to get at least ten years out of it. I think when you are getting a car for the long haul it adds a little extra to the new car debate.

    Another thought…it’s harder to value a used car over a new car. With a new car you can find the invoice price and the dealer incentives to figure out what you should pay. With used it’s a little more of a gray area.

  17. Oh, I can really related to this article. This is a big one I’ve battled with for at LEAST 2 years. The wife and I started out with a used 1998 GMC Jimmy that I had before I met her. It got the job done, cost 15k (in 2002), and made several trips of 1000+ miles, and we still have it.

    It was fine for carrying the one child around along with our stuff, but with the addition of our second child in 2005, it just didn’t cut it anymore. It was a big car, yes, but not big enough to make the 1000 mile trips back and forth to see the fam, so in came decision time.

    We decided, and shopped around very little to find our “perfect car” or so we thought. The 2001 used Suburban was exactly what we were looking for and got pressure saled into it like nobodys business. I did a very bad job of shopping even though I had “the folder”. It won’t happen again the next time we vowed and have been in that situation ever since we realized that we hate the “barn doors” in the back as opposed to the hatchback model of burb (the barn doors have no wipers on them, try driving with that in the mud and slush in the biggest ride on the rode, ugh).

    So we’ve been trying to convince ourselves that the NEXT vehicle will be enough to put us over the edge. After 2006, the machine changed, and that was close to making us buy new at the time. We’ve even gone so far as to just find ways to degrade the idea of new (as I see you’ve done) but it is still hard to come up with enough ideas. That’s the whole point of new cars, they’re so addictive and sleek. Coming up with excuses to NOT buy one is the trick we’ve battled with.

    We’re going on year 2 of holding off, but the 2009 lineup should be coming out soon, and we like the idea of fuel efficiency in the bigger vehicles, but those suckers would need to be pretty heavy to hold batteries to power a bigger vehicle. I was in the same boat with you on the Tahoe, but thought we’d really needed the extra space in the bigger model (however, I think you can get by on the Tahoe with just the 1 kid in March, congrats by the way!)

    Ultimately I think Mr ToughMoneyLove summed it up pretty nicely, “Buy new because you get a new car. Buy used because it makes financial sense.”

    If you’ve got the extra coin to buy new, I can’t deny the new car smell, reliability, features, and warranty. But if you are on a budget, Pete makes a good point in that you can save thousands buying a year or 2 old…

    Off the soapbox… Good post PT.

  18. @Hank – Wow. Comment of the Year. Good luck with the hold out. I hope you’re able to time it just right.

    I know good deals can be had on new cars. Definitely right now with gas prices high, the bigger vehicles can be taken with most of the premium already knocked off.

    I think it’s a gamble worth taking if you have a short commute (to negate the future mpg issue) and can also get a great financing rate.

    @J – I appreciate you doing this post and I look forward to your next contribution, followed by your own pf blog one day. 😉

    @All – We will likely get a new SUV when the baby arrives.

    Mrs. PT has never owned new. She’s as frugal as they come, isn’t connected emotionally to things, has always had a hand-me-down or purchased a used car, and will have huge buyers remorse when we leave the lot with it.

    I want her to have a new vehicle. Not that she needs it or deserves it but because we can afford it, she will take care of it, and she will run it into the ground. I guess what I’m saying is that we’ll be making a smart *new* car purchase, rather than a smart car purchase.

  19. A last thought on new (which I did); get the goodies. They may cost you an extra $20 a month, but the first time you’re on the road telling yourself “I wish I had that…”, or when you want to sell and the resale goes down because of that one thing you didn’t have….weigh it out for yourself.

    Big thanks to PT for letting me go back and forth with him. Ironically, my wife and I need a second car soon, and all comments help, even though we already took the plunge on new for our primary.

  20. Pete @ says

    I’ll NEVER buy a new car, unless I win the lottery. You can get the same car, 2 or 3 years later for thousands less, and usually with 30k or less miles.

    Used cars do have more maintenance costs usually, but at the same time they have less or lower payments (or none if it is paid off like mine) and the insurance costs are a lot less. If you budget for the expected maintenance costs, you won’t have any major problems, and you’ll save THOUSANDS!

  21. earthenvessel says

    I had a used car, and used AAA regularly to keep it in the road… until I switched to a job where I regularly did home visits in a very unpleasant neighborhood. One day, my car died in an apartment parking lot in one of those neighborhoods…
    and it didn’t take me long after that to buy a new car. Admittedly, it wasn’t the most sound financial decision… but I’ve got absolutely no regrets about buying new. My car has yet to strand me anywhere, and the peace of mind that comes with that in my job is worth it’s weight in gold. Or car payments!

  22. @Bri – Thanks for stopping by. Yes, ridiculous was what I was going for.

  23. PRO: Latest fuel efficiency built into engine.
    CON: Gas prices are going to plummet as soon as we start drilling here in the U.S., release the reserves, and get those windmills up in West Texas. We’re already starting to see prices coming down. This fuel efficiency stuff is just a waste of money.

    This is the most ridiculous comment I have heard in a long time! Gas prices may drop once we start off-shore drilling (IF that happens), but it IN NO WAY fixes the problems that our country has with limited energy sources. Off-shore drilling, most likely (and historically speaking), will cause a flat-line AGAIN in the search to find more efficient and reliable sources of fuel.

    As for buying new vs. used, if I had saved money to put toward a down payment I would purchase a new car due to the warranty and the fact that it is easier to trade in and get a better deal trading new to new and would allow us to maintain very safe cars with little worry for repairs. Not to mention the ability to continue to get better gas mileage and move toward vehicles that can use alternate fuels (like E-85, electric, etc).

    For me it is more important, but that’s me.

  24. I am buying a used car every single time. Unless I am filthy rich and I can pay for the car in full price (which will never happen), I am buying a used car. Easier to haggle and find deals and, as mr toughmoneylove says, buying used makes much more financial sense! I dont think you have to look much further than that statement!

  25. Mr. ToughMoneyLove says

    PT: I think that you can summarize the arguments above as follows.

    Buy new because you get a new car.

    Buy used because it makes financial sense.

    So, if you are a person that values emotion, impulse satisfaction, and style, buy new. If you are a common sense money person, buy used.