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Should I buy a new or used car?

We dissect the costs associated with buying either a new or used car, examining how each choice impacts your wallet both now and over time

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About 10 million cars and vans are sold in the UK every year, with about 8 million of these being used vehicles and about 2 million being new. For most car buyers, choosing between a new or used car is a purely economic decision, but are there other factors you should be considering?

Offering the latest on-board tech, advanced safety features, interior comfort and refined engines, the allure of a brand-new car straight from the dealership floor is strong. But used cars are often just as capable at handling your daily commute, and come with compelling financial incentives.

This article dissects the various costs associated with buying new and used, examining how each choice impacts the buyer’s wallet over time so that you can make a more informed decision.

Value for money

New cars carry a heftier price tag – a reflection of their unblemished state and the premiums that come with new technology and comfort features. You’re also paying VAT on a new car, so that forms part of the price.

Used cars attract buyers with typically lower asking prices, providing significant upfront savings. The price tag will reflect the vehicle’s age, condition and mileage, as well as the relative popularity and desirability of that model.

Depreciation

Depreciation is the greatest financial burden faced by new car buyers, although it’s a deferred cost that only affects you when you come to sell the car. It hits hardest in the first year of ownership, where a new car might lose up to 20-30% of its value, an accelerated depreciation that lessens somewhat with each passing year. Over five years, a new vehicle could see its worth diminish by over 50%, although this means that annual rate of depreciation has reduced to only about 10% a year on average.

A used vehicle loses value at a markedly slower pace. Already past its primary years of depreciation, a buyer avoids the sharpest drops in car value. This means that the car should keep most of its value should you look to sell it a few years down the line.

If you buy a new car and then sell it again within a couple of years, you’re going to take a much bigger hit on depreciation than if you buy a used car instead. And if you keep your car for longer, you reduce the average depreciation compared to changing your car more frequently.

Car finance

However, the car’s price tag and depreciation are not the only indicators of value for money. Very few new car buyers pay cash for their cars anymore, with almost all customers buying or leasing the vehicle on some sort of finance package. This can significantly affect the value equation.

The interest rate you pay on your car finance is likely to be much less on a new car than on a used car. Car companies and their associated finance companies use car finance as a means of discounting, in addition to – or instead of – taking money off the car’s price tag. The car company will always be more interested in selling you a new car instead of one they built a few years ago, so that’s where the best deals are.

With a combination of discounting (usually through what’s known as a deposit contribution) and better interest rates, the monthly cost between a new car and a near-new used car might be a lot less than the price tags suggest. In some – admittedly rare – cases, a new car can actually work out cheaper than a low-mileage used car.

For electric cars, there’s also the possibility of salary sacrificing a new car if you’re eligible. This can save you hundreds of pounds a month compared to financing a new EV using a PCP or other financing method, and can make it cheaper than buying a used electric car (or cheaper than an equivalent new petrol/diesel/hybrid car).

If you’re only planning to keep the car for a relatively short period of time, or you don’t need a car all-year round, a short-term lease or a car subscription may be more cost-effective than buying either a new or used car.

Reliability and maintenance

New vehicles, with their untarnished mechanical history, tend to perform better in terms of reliability. Car manufacturers ensure that new cars meet stringent quality checks before they leave the production line, plus they have to provide a warranty on the vehicle so it’s in their interests to ensure that their cars don’t break down.

Used cars, while initially affordable, can sometimes harbour hidden complications due to past usage or neglect which aren’t always apparent even to vigilant buyers. More luxurious or tech-laden models could have very high repair costs if things go wrong.

Once the new car warranty expires (which could be anywhere from three to seven years from new), repairs can get very expensive very quickly. If you’re looking at buying a used car, it’s certainly worth factoring in the purchase of a used car warranty to help protect your wallet from nasty shocks. Be sure to obtain a detailed vehicle history from the seller, and consider paying for an inspection by a certified mechanic to avoid significant unforeseen expenses.

Using data exclusively provided to us by our technical partner MotorEasy, our Expert Rating Index grades new and used cars on their reliability, and new models tend to get much higher scores, especially from brands known for durability and low-cost maintenance.

Modern cars are engineered with advanced materials and technologies that push efficiency boundaries and diminish regular wear-and-tear, which is likely to save you several hundred pounds in the first few years of ownership.

According to another of our key partners, Clear Vehicle Data, servicing and maintenance costs are cheaper for new cars than for used ones. Average new car servicing bills are between £500 and £700 annually for a new car from year one to year three of ownership, and between £1,000 and £1,400 for years three to five. Opting for an electric model is usually cheaper when it comes to servicing, as we discuss here.

So, why are older models more expensive to maintain? Well, older vehicles with higher mileage might require frequent crucial interventions like timing belt replacements, brake jobs, and suspension overhauls which inflate upkeep budgets over time.

New cars also generally benefit from a healthy supply of parts and more predictable pricing, while finding parts for older, perhaps discontinued models can turn into a quest – often an expensive one if the only fix available comes from aftermarket solutions or rare part dealerships.

Overall, anyone weighing up whether to opt for a used model rather than buying new needs to weigh potential long-term maintenance costs against the attractiveness of a used car’s lower price tag.

Insurance and other annual expenses

Insurance costs for vehicles can vary based on factors including vehicle age, overall value, and built-in safety features.

Newer vehicles, while equipped with advanced safety measures and technology, command higher insurance premiums due to higher replacement car costs and the higher cost of parts required for repairs. Insurers also consider the higher likelihood of theft for newer, more attractive models.

Used cars benefit from more modest insurance rates due to their diminished market value following depreciation.

However, this advantage can be offset if the vehicle lacks modern safety features, as insurers evaluate the potential payout risk associated with injuries in vehicles less equipped to handle crash impacts effectively. Owners of older vehicles potentially face steeper medical bill claims, influencing insurance rates upwards.

Beyond insurance, other ownership expenses like annual taxes and registration fees also tilt the scale when contemplating the purchase of a new versus a used car. These costs typically dwindle as the vehicle ages.

New cars, with their higher valuations, tend to lead to higher taxes and fees at the time of purchase and over the initial few years of ownership.

Summary

There’s no ‘right’ or ‘wrong’ choice when deciding whether to buy buy new or used. What’s important is that you understand what the relative costs are likely to be, and make sure you’re comfortable with your decision.

For some buyers, there’s nothing to beat a new car and they’re prepared to spend a bit more to have one. Others will look the up-front savings of buying a used car and think of what else they could do with extra money they’re not spending.

But keep in mind that a car will cost you money now and pretty much every day you own it over the next few years, so it’s crucial to be aware of both the up-front costs as well as the likely costs each month and year that you own the car.

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.