Happy couple accepting the keys to their newly financed car Happy couple accepting the keys to their newly financed car
Happy couple accepting the keys to their newly financed car

Should you buy a new or used car?

It’s a question that every driver asks at some point, and it’s one that doesn’t have a straightforward answer.

Buying a used car can sometimes be the cheaper option, and depreciation isn’t as much of an issue. But there are certain assurances that come with buying a new car, and these could tip the scales the other way.

If you’re buying a car and can’t decide between new or used, these are the things you must consider.

Cost considerations

Ask the average motorist about the cons of buying a new car and they’ll almost certainly talk about depreciation, often with some kind of exaggerated claim:

“As soon as you ride it out of the lot, it’s worth half of what you paid”.

The truth is that while you can lose a lot of money on new cars, the exact amount varies greatly based on the make and model.

Take the Toyota RAV4 as an example. It’s one of the most popular cars in Australia right now and new models sell for between $36,550 and $55,150 depending on the spec.

If you check marketplaces, you’ll notice an average of 30 to 35% depreciation over the first 3 years. It means that a car purchased for $50,000 today could be worth as little as $32,500 in 3 years.

But that doesn’t tell the whole story.

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The make, model, spec, and condition of the vehicle can all impact its price. Just as importantly, if you’re trading the car in or selling to a dealer, you’ll get less than if you were to sell privately. And then you have to consider the market itself—are people buying and are they interested in your car?

Depreciation is real, but it’s not as doom and gloom as you might think.

You also have to consider how much money the car is saving you during that period. New cars tend to be more economical and require less maintenance and fewer repairs.

The financing on new cars is usually lower than it is on used cars, too. But on the flip side, used cars are cheaper to insure.

On average, buying a new car will cost you more during the first few years. The question is whether that additional cost is worth the extra benefits (see below), reduced maintenance, and added peace of mind.

Condition and reliability

New cars are less likely to experience problems and require costly repairs. Such issues can occur, but that’s where the warranty comes in. Most new car warranties last for between 3 and 7 years.

That warranty can be transferred to a new owner further down the line, but if you’re buying the car 3, 5, or even 10 years later, there probably won’t be much—if anything—of the warranty left over.

However, if the car has been well looked after and properly maintained, a good used car can last for years with very few issues.

You won’t get the full warranty, but you can insure the car against the worst outcomes and regular servicing will keep it in tip-top condition.

Features and options

Automotive technology moves at a rapid pace these days. Sound systems, navigation systems, parking sensors, and security features have all advanced in the last few years.

The same is true for fuel efficiency, with manufacturers now paying more attention to drivers’ wallets and the environment.

If you buy a new car, you can get all of the latest features. If you buy used, you’ll have to settle for older technology.

But unless you’re moving from a brand-new car to a used car, it won’t feel like a downgrade. Even technology from 5 years ago will feel new if all you know is rusty city buses and ageing taxis. What’s more, many of the latest features don’t come as standard. They are add-ons and they are often charged at a premium.

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Environmental and ethical considerations

When you think about the environmental impact of buying a new or used car, you’ll probably assume that new cars are better.

As noted above, they are usually more economical and have been manufactured under strict environmental guidelines.

But the manufacturing process also leaves a sizeable carbon footprint. And don’t forget—this is Australia. We’re not known for our automatic industry and import billions of dollars’ worth of vehicles every year, with many coming all the way from Japan, South Korea, Germany, and the United States.

If you choose to buy new instead of used, you could be facilitating the creation of a new vehicle while condemning an older one to the scrap heap…theoretically.

Personal preferences and priorities

After considering cost, features, and environmental impact, we arrive at the last and most important consideration: personal preference.

It’s your money and you’re the one driving the vehicle, so it all comes down to what you prefer and what you need.

Is there room in your budget for a new car or a large loan? Can you justify such a big spend when you’ll only be using it for the school run?

Buying a new car gives you better financing, more choice, less maintenance, and a more positive shopping experience. But buying a used car is considerably cheaper, both with regard to the purchase price/depreciation and insurance cost.

Maybe you’re driven by cost and can’t bring yourself to buy a vehicle that will rapidly depreciate in value. Maybe you hate tinkering, dread visiting the mechanic, and are happy to pay extra if it means getting a warranty and the assurance that only a new car can bring.

Maybe you just really like the new car smell.

At the end of your day, your opinion is the only thing that matters here.

Ready to hit the open road?

Whether you’re buying a new or used car, you must do your research and ensure you’re making the right decision. There is no simple, catch-all solution, and what’s best for the average Sunday driver may not be suited to someone who drives 10,000+ kilometres a year.

Do your research, consider your options, and seek professional advice before you make any major financial decisions.

About the Author

Rowdie Lang

Rowdie has been a part of our Team since 2020. He has witnessed firsthand the ongoing evolution of the finance industry as technology continues to change the way customers' access financial services. He has a passion for helping people and relishes the opportunity to work alongside our teams every day as they help our customers financial dreams come true.

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