Purchasing a pre-owned vehicle enables the owner to avoid the biggest initial costs of having a new car.
1. Avoiding Steep Depreciation
The major financial benefit is this.
New Car Depreciation: A brand-new car starts to lose value the instant it is driven off the dealership’s lot. On average, a new vehicle can lose 20% to 30% of its value during the first year alone and up to 50% within the first three to five years.
Used Car Advantage: When you buy a two- or three-year-old car, the original owner has already absorbed this major depreciation hit. The car’s value will continue to depreciate, but at a much slower and steadier rate. You are buying the car closer to its actual market value.
2. Lower Purchase Price
The first selling price of a used car is way cheaper than a brand new one, saving you thousands of dollars right out of the gate.
This lower price may allow you to buy a higher trim level or a car with more features than you can afford when buying new.
3. Reduced Associated Costs
Since the value of the car is lower, several other ownership costs are also typically reduced:
Lower Insurance Premiums: The insurance costs for used cars are low since the replacement value of the vehicle is not as high as a new one.
Lower Registration Fees and Taxes: The registration fees and sales taxes in most regions are aligned to the purchase price or the vehicle’s value, which means lower amounts in the case of a used car.
4. More Favorable Total Cost of Ownership (TCO)
With used cars, there will indeed be slight, higher maintenance costs in the long run compared to a brand-new car, but huge savings from initial purchase and depreciation often make the total cost of ownership for a used car much lower than for a new one.
How to Find the Best Used-Car Deals
Finding a great used car is all about thorough research and smart negotiation.
1. Do Your Research, Set a Budget
Determine the Fair Market Value: Research with online sources such as Kelley Blue Book, Edmunds, or J.D. Power to get a general idea of what the particular model make, year, and mileage will typically sell for. The research then gives you a realistic starting point for negotiations.
Set a Hard Maximum Price: Decide on the absolute maximum price that you can spend and stick to it, remembering the total cost of ownership, including repairs that might be needed.
Get Preapproved for a Loan: If financing, getting preapproved by a bank or credit union before shopping provides a firm budget and offers greater power when negotiating with the dealership.
2. Know Where to Shop
Private Sellers: These private sellers usually have the lowest prices since they have lower overhead than a dealer. However, they offer no warranty, and the buyer assumes all risk.
Franchise Dealerships: Sell CPO, or Certified Pre-Owned, vehicles. These are late-model/low-mileage cars that have been rigorously inspected and carry an extended manufacturer warranty. These are the most expensive pre-owned vehicles but offer the most peace of mind. Independent
Used Car Lots and Online Marketplaces: These generally offer the biggest selection, but the quality and price can vary wildly.
3. Vet the Vehicle Thoroughly
Check out the history report: It is always a good idea to purchase a vehicle history report, such as CarFax or AutoCheck. These reports show the car’s history, including accidents, flood damage, salvage titles, and service history.
PPI: You should hire a trusted, independent mechanic to perform a PPI on any car you are seriously considering, especially one from a private seller. This is a very important inspection that may show hidden mechanical problems, possibly saving you from buying a “lemon.”
4. Negotiate Smartly
Focus on the Out-the-Door Price: Refrain from letting the salesperson anchor a negotiation based on a comfortable monthly payment. Negotiate the final sale price of the vehicle itself. Use Your Research as Leverage: Quote the fair market values that you found online and any quotes you received for similar vehicles at other locations.
Be Willing to Walk Away: The best leverage is the willingness to walk away from a deal that doesn’t meet your financial requirements.