Buying a new car vs. used car with a loan

New or used? It’s a question that many Australians ponder when shopping for a vehicle.

At Fox Finance Group, we have helped hundreds of customers to find the perfect car loan, and as Australia’s lending specialists, we can help you to make the right decision.

But which one is best and what are the pros and cons of each option? In the following guide, we’ll help you to decide if you should get a new or used car loan.

Advantages of Buying a New Car

You can’t beat the look and feel of a new car. Even the smell is magnificent. But there are other advantages that extend beyond that famous “new car smell”.

• Easier Finance: Car finance is usually cheaper for new cars. It’s also easier to acquire.
• More Choice: You get to choose the exact colour and spec of the vehicle.
• Better Tech: By getting a new car, you can benefit from the latest in-car technology.
• Warranty: Your new car should be covered by a manufacturer’s warranty.
• Cheap Maintenance: It’s rare for a new car to have any issues in the first few years.

Disadvantages of Buying a New Car

Despite the clear benefits, there are also some big downsides to getting a new car loan.

• It’s Expensive: A new car costs significantly more than a used vehicle, so while the finance might seem more palatable, you’ll pay more over the long term.
• You May Need to Wait: If you want a specific vehicle made to an exact spec, you may need to wait several months.
• Depreciation: New cars lose a lot of their value in a very short space of time. You could lose 20% in the first year alone.

Advantages of Buying a Used Car

Although exact figures are hard to find, there are an estimated 3 million used car sales in Australia every year. Aussies are considerably more likely to buy used than new, and there are some clear advantages to doing so.

• It’s Cheaper: A used car will be cheaper in the long run. Even if you buy a car that is only a year old, you could save a fortune.
• Lots of Options: You have plenty of options at your disposal, with a wide choice of manufacturers, models, and years. If it’s in your budget, it’s a possibility.
• Little Waiting Time: As soon as you find the car that you like and set up car finance, you’re good to go.

Disadvantages of Buying a Used Car

There are several disadvantages to buying used cars vs new cars, the most prominent of which include:

• Higher Maintenance: If the car breaks, you’ll need to fix it, and those costs can get very expensive.
• Unknown History: Although you can do your research, you won’t always know for sure where the car has been, what it has been used for, and whether it has had any issues.
• Short Warranties: Although warranties are still available with used cars, they are much shorter than new cars.

Considerations for Loan Repayment and Financing

Whether you choose a new or used vehicle, if you choose car finance, the lender will provide the funds, define the loan term, and then charge interest. Most car loans are secured, which means that if you fail to meet your payment obligations, the car will be repossessed.

Pay close attention to the following when looking for a car loan:

Interest Rate and Loan Term

The interest rate and term will define how much interest you pay. It is charged per annum, so the longer the loan term is, the more interest you will pay.

For example, if the rate is 6.5% on a 5-year $45,000 loan, you will pay $7,829 in total interest.

Minimum Payment

You must be able to afford the minimum payment, with no exception, and you shouldn’t let yourself be lured by a low monthly payment that results in excessive interest.

For instance, let’s assume you borrow $10,000 at 6.50%. If you were to repay it in 3 years, you’d face a monthly fee of $306.49. If you choose 7 years, that drops to $148.49.

The latter is clearly the better option, right? Not really, as that reduced monthly payment will cost you $2,243 in total interest, compared to just $1,034 for the 3-year option.

Balloon Payment

Many car loans include something known as a balloon payment. It is an agreed-upon sum that is paid at the end of the loan. If you tie up more of the loan amount into this sum, the monthly payments will be smaller, but the interest will be higher.

Car Loan Fees

Depending on the loan that you choose, you may be required to cover additional fees, including upfront costs, late payment fees, discharge fees, and more.
Assessing Individual Needs and Preferences

Ultimately, the general pros and cons don’t matter and whether you should opt for a new or used car loan depends on your personal situation, including:

• Budget: If money is tight, a new car is probably out of the question. If money is no object, you may value convenience above all else. When value is the number 1 priority and you want something that won’t lose a lot of money, you can’t beat used cars.
• Credit History: The worse your credit history is, the harder it will be for you to get a favourable loan. On the other hand, if your credit history is excellent, you can have your pick of the rates.
• Intended Use: The reliability provided by new cars can be a godsend if you travel long distances and rely on your vehicle. But if you’re just driving a few miles to work or school every day, it may be an unreasonable cost.
• Specific Requirements: Do you need a lot of space, a high-tech addition only available on new cars, or something else? Weigh up your options, as adding them to a new car is easy but expensive while finding them in an old car can be difficult.

Seeking Professional Advice from a Lending Broker

An expert broker can help you to choose the right option, find the best deal, and get you past those initial steps. They can discuss the benefits of new vs old cars, highlight the costs involved, and leverage their expertise to guide you. So, if you’re struggling to make a call, seek professional advice.

Are you looking to secure vehicle finance for your next car?

Reliability vs depreciation; lower cost vs higher interest rates—there’s a lot to consider. Ultimately, there is no “better” option here, but as long as you assess your situation, consider your options, and then work closely with an expert broker, you will get the deal that’s right for you.

Contact one of the expert lending specialists at Fox Finance Group today to chat about car loans and connect with the country’s best lenders.