I got a ton of great comments on the my post about new cars vs. used cars, so I'll add a little more fuel to the fire. Michelle Krebs over at Auto Observer posits that with used car prices rising fast and many new-car incentives still inflated thanks to the decrepit economy, buying a new car these days might actually make more sense than buying used in many cases.
The numbers are pretty striking. Used-car prices are 11 percent year-over-year, as people try to figure out ways to trim from their budgets by buying used. I'd also bet that fewer cars are entering the used market because people are holding on to cars longer. And because fewer new cars were sold in 2007, 2008 and 2009 because of the recession, there are fewer used cars in circulation now.
But this brings us back to the new vs. used conundrum. Think about it: If the prices of a new and a used model are only a few thousand dollars a part, all things considered, I think you have to go with the new car. You get a better warranty and the peace of mind of knowing it's been maintained throughout its lifetime, which is a big deal. I've just known too many people who forgot to change their oil until the "need oil" light came on to take for granted that every car on a used car lot has received basic maintenance.
Plus, if high used-car prices continue, it will mean that the depreciation hit you'll take will be lower when you decide to move on.
Topping it off, if you plan on financing the car, you'll get an interest rate that's at least a full point lower on an auto loan for a new car than you would on an auto loan for a used car. Depending on your price range that can make a big difference (you can use our auto loan calculator to see how it would affect you).
So, you tell me. If a new car is only a little more expensive than a used one, is used-car buying still the frugal thing to do?