A car is a big purchase, so your buying decisions are important. In shopping for a car, you'll probably have to choose whether to buy new or used. Car shopping site Auto Trader suggests four questions for making that decision.
According to Auto Trader, you should consider the following when deciding on a new or used car:
- Do you have a down payment or a trade-in? The smart financial move is to pay for your car in cash and avoid a loan altogether. If that's not possible, you should at least have a sizeable down payment. In fact, with a used car, a down payment or trade-in is almost always required. But maybe you don't have much for a down payment. Auto Trader suggests another option: some new car incentives might cover the down payment, meaning you can put zero down—if you have good credit.
That option might be tempting, but it's also risky. As The Simple Dollar points out:
"...suddenly you lose your job – and you realize you need to sell this expensive new car. The best you'll probably be able to get for the car is about 80% of the asking price, but if you've made no down payment, even selling the car right now will leave you with 20% of your loan unpaid and nothing to show for it. This is called being "upside down" in a car loan, and it's something to avoid if you can."
You should make a sound financial decision based on your situation. Overall, consider your down payment or trade-in options, and weigh your choices.
- Should you take the depreciation hit? Some new cars can depreciate up to 50 percent in the first three years, according to Auto Trader. With a used car, much of that depreciation has already taken place. Of course, if you plan on driving your car into the ground, its depreciation won't matter.
- Can you afford to maintain a used car? If you decide to buy used, there's a chance that you'll interhit maintenance problems. If you buy a newer-used car, you might still be under warranty.
- Can you afford the time a used car spends in the shop? Along with the maintenance costs, a used car may spend more time in the shop. Does your lifestyle allow for that down time? With a new car, you don't have to worry about this as much.
When deciding on a new or used car, there are many variables to consider. These four questions should start you in the right direction. For more detail, check out the post in its entirety.