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Purchasing a used car over a new vehicle is a great option for many drivers. As inflation rates in the U.S. soar to record-high numbers, Americans are seeing its effects at the grocery store checkout and at the gas pump. And with the new vehicle costs averaging close to $48,500 in August 2023, according to Kelley Blue Book, now might be the perfect time to save money by buying used.
Buying used will save you money
Going for a used car rather than a new one can save you big bucks in several ways. A used vehicle will cost less based on sticker price alone — but that’s not where the savings stop. You will also be reaching for your wallet much less than if you drove a brand-new vehicle in terms of fees, insurance and vehicle depreciation.
The average monthly payment in the third quarter of 2023 for a used vehicle is $533, while drivers financing a new vehicle paid $726, according to Experian. Saving nearly $200 a month adds up quickly, and you could end up saving thousands by going for a used car over a new one. While paying a lower purchase price for the same car model of a different year is the obvious reason to buy a used car, there are others as well.
5 advantages to buying used
Not all used cars are created equal. You must do your homework before deciding if a used car is in good or bad shape. With that caveat, here are five of the best reasons to buy a used car.
1. Less vehicle depreciation
Vehicle depreciation is an unavoidable reality of driving, but a used vehicle offers much less depreciation than a new vehicle. New cars typically depreciate about 20 percent when they are driven off the lot. And most cars will lose another 10 percent in value during the first year. That’s a loss in value of 30 percent during the initial year of ownership.
A used vehicle depreciates at a much slower rate than a new vehicle. This is because once you are behind the wheel of the vehicle it will have already undergone its major depreciation. Brand new cars depreciate the moment they leave the lot, but a used vehicle equals slower depreciation, which means you’ll have a more stable loan-to-value ratio.
2. Lower insurance costs
Insurance costs vary based on your age, driving history, credit score, mileage and location. Typically — just as the vehicle will cost less — insurance for a used vehicle tends to be lower than that of a new vehicle. A key factor in determining the cost of car insurance is the value of the car. Because a used car has less value than a newer version, the cost of insurance should be less.
In terms of recommended coverage, if your vehicle is older, then you may want to consider liability only if your state allows it, versus adding comprehensive and collision coverage if your vehicle is newer. But insurance rates are not always consistent, so to save money, be sure to compare rates and research your expected auto insurance cost before driving off the dealership lot.
3. Lower dealership fees
Just as insurance varies by ZIP code, the expected fees that come with your used vehicle are not created equal across all 50 states. But they are less expensive than the fees associated with a new vehicle because the cost of the vehicle is less in the first place. This is especially true for any sales tax that you may have to pay.
To prepare for the additional fees that come with used vehicle ownership, check your state DMV website for specifics regarding title tax and registration fees and documentation fees.
4. More bang for your buck
Stretching your car-buying dollar is another major benefit that comes with buying a used car. You can buy more car by purchasing used rather than new.
If you have your sights set on a luxury vehicle, you may not be able to afford this year’s model, but one that is two or three years old could better fit your budget. It’s also important to consider the fact that carmakers are no longer redesigning their models every year, so the tech and style differences may be less noticeable.
Calculate these potential savings and even compare which is right for you with a new versus used car calculator.
5. More peace of mind
In the past, driving used cars carried a stigma and many drivers saw it as a risk, but the availability of vehicle history reports has altered this landscape. Drivers now can see details about a car’s ownership, accident history, title status, mileage and more.
Before signing off on a used vehicle take advantage of offerings from websites like Carfax and AutoCheck to see history reports on the vehicle. Based on the car’s vehicle identification number, or VIN, these reports provide an array of valuable information including verification of the mileage and whether the vehicle was ever declared a total loss by an insurance company.
Certified pre-owned option
If you are still worried about potential hidden problems in a used vehicle, purchasing certified pre-owned might be a great option for you. You will still save money by buying a used car but gain additional confidence in the reliability of the vehicle. Certified pre-owned — or CPO — programs vary from manufacturer to manufacturer. In essence, CPO cars are vehicles that meet a manufacturer’s established standards and carry some form of guarantee against defects, similar to a new-car warranty.
To do this, check dealership inventories for the CPO vehicle you are looking for. Every dealership uses its own lingo when it comes to pre-owned options so be sure to explore online before heading to the showroom. Most of these vehicles also come with additional warranties, so check the length of that coverage to understand what it includes.
Buying a used vehicle is a great way to get behind the wheel without shelling out as much as you would for a new vehicle. You will be met with less vehicle depreciation and spend less on insurance and registration while still having peace of mind that your vehicle is in good condition.
When the time comes to finance a used car, be sure to check current auto loan rates, so you know you are getting the best deal available. And to calculate your potential spending that financing will bring.