MAY 25, 2022
So, it’s finally time to say farewell to your current ride and check out the auto market for a new car. The toughest choice for buyers is often whether to purchase a new or used car, and how this will impact their finances. It’s an important choice to make, and with this in mind, it’s worth learning about your options.
Some people see a car as their pride and joy. Others see it simply as a way to get from A to B. But whatever your view is, one thing is for sure, buying a new car is an investment and requires serious thinking to ensure your purchase is right for you. With that in mind, we unpack the pros and cons of buying new vs used vehicles, as well as finance options and important things to look out for before you pick up the keys.
Vehicle goals are important. They can define you and your lifestyle. To start, ask yourself, “What are the things I am looking for in a new car?” With so many available vehicle options in the new and used car markets, it’s hard to know where to start. But whether you’ve got your eye on a new or used car, you might already have an idea of where your priorities lie and the image you want to portray. If not, we can help you along the way.
If you’re in the market for a new car, you may be more interested in the aesthetics of your ride like the color, model, and cutting edge technology. Plus, a new car can be more reliable, as it won’t have been worn down by general wear and tear on the road. But these perks come with higher costs, meaning if your heart is set on a fresh set of wheels, you can expect to pay more.
On the other hand, opting to buy a used car means you’re less concerned with its image. Instead, your goals may revolve around affordability and availability. Older cars are generally cheaper and can be more commonly found if you are looking for a popular make or model of vehicle, so you will be able to afford a more budget friendly car.
Alternatively, you may be looking to purchase a higher quality car or luxury vehicle. Shopping the used market for these types of cars definitely has advantages. Since it’s used, you can normally find premium packages or “loaded” trim options for a bargain compared to newer versions of the same vehicle. On reputation at least, an older Audi might have more legs than a newer Fiat at the same price point, which is something to consider.
Looking to save money on your car loan? Check to see if you can put cash back in your wallet. On average, Caribou customers save $100+ a month*.
With vehicle technology constantly evolving, there’s likely to be a difference between what sort of add-ons you will be getting in a new or used car.
When you’re buying a new car, you might expect even the lowest trim model – i.e., the one with the least number of features – to include tech that would’ve been high-spec on the “loaded” versions of older models. Whether you’re looking for satellite navigation (sat-nav) screens, heated seats, Bluetooth, remote start features, or blind-spot monitoring, newer car models are likely to come equipped with it.
You may have to forego some of the latest tech options if you are considering buying a used car. That said though, certain key tech features have been integrated into plenty of car models for some time. While techy features may not be your top priority, you might be surprised with what you find in older models.
If you’re considering a used car, research the latest generations of vehicles and when specific features were added. Auto manufacturers update their vehicles every few years. You may find a vehicle from three-to-four years ago from the same generation will come equipped with the same technology as the current year models.
Finances can play one of the biggest roles when you are considering buying a new vs used vehicle. It’s important to be aware of the different options available for each type and how you can get the most “bang for your buck.”
New car dealerships are likely to offer incentives and manufacturer’s rebates to buyers, which can make the option tempting for those in the new vehicle market. Things like cash back, 0% financing, or even a 0% down payment, may help to save new car buyers thousands of dollars, making the vehicle more affordable. New car financing can also have lower interest rates versus used car loans since the collateral value of your loan, the car’s equity, is known to them.
As a rule of thumb, used cars are usually less expensive to finance. This can result in a lower monthly car payment since you need to borrow less to finance it. In addition, the depreciation of cars is generally faster in the first few years of its life. Cars are rarely an investment which get a future return, but the value of a used car in good condition should stay relatively stable should you want to sell it.
Another benefit of used cars is lower insurance premiums. Since the vehicle on the car insurance policy would cost less to replace, insurance companies will charge less, so there is an opportunity to save there as well.
Whether you own a new or used car, refinancing a car loan can be an additional way to save money. In some situations, refinancing can be beneficial if you are able to get a lower interest rate than your current car loan. If you are in a financial position to do so, you could increase your monthly payment, thus paying off your car loan quicker and getting out of debt. However, these results are not guaranteed, and depending on the value of your car, you may end up paying more interest and fees.
You can also try to lower your monthly payment through refinancing. If you need to save money now, you can lengthen the term of your loan so you will have more time to pay it off with lower payments. This is just one option, and there are a number of similar goals you can choose. You can learn more about the refi details using our guide to car refinancing.
So, does owning a new or used car make a difference when refinancing? Often, it will depend on your lender. But if you own a new car, you may have been given dealer discounts on interest rates for a limited period. In this case, you should wait until these deals expire or risk losing their benefits and not taking full advantage of any discounts.
With used cars, on the other hand, you can usually refinance at any time as long as you and your vehicle meet lender requirements. These requirements can include your credit score, debt to income ratio (DTI), vehicle mileage, and age along with other things. Make sure you’ve weighed the pros and cons of refinancing and understand the basics of first.
Thinking about refinancing? Start your auto refinance process through Caribou.
Getting a car warranty is often a big deal for new car buyers and may steer them in the direction of buying a newer model. This is because, fresh out of the dealership, new cars come with bumper-to-bumper coverage across all aspects of the vehicle. It usually lasts for at least three years, or 36,000 miles. The factory warranty covers everything but a select few parts of the vehicle, meaning if anything goes wrong in this period, you won’t be paying out of pocket for repairs.
Most new cars also come with drivetrain warranties, which cover important mechanical components like the engine, transmission, and axles of the vehicle. Since they cover more expensive parts, this warranty tends to be longer, generally around five years, or 60,000 miles.
If you’re shopping for used vehicles, finding warranty-like products is not out of the question. Used car shoppers can look for certified pre-owned vehicles, or CPO, which undergo multipoint inspections by a brand certified mechanic and come with a CPO warranty on the drivetrain. CPO used cars are often more expensive than similar non-CPO vehicles.
Other than CPO warranties, you can also purchase a vehicle service contact, or VSC, for your used car. VSCs help you fix your vehicle when specific parts break. They can cover components and parts like the engine, drivetrain, suspension, and electrical systems. Some VSCs also include roadside assistance to help you if you become stranded. CPO warranties and VSCs can help you maintain your used car and avoid paying big bucks if something major goes wrong within the coverage terms.
Finding the right condition for the type of vehicle you want is part of the car buying equation. New cars have the advantage when it comes to comparing conditions of new versus used vehicles. The new vehicles have very low miles and come in pristine condition. Less wear and tear means fewer likely repair costs down the road and a longer-lasting ride.
The condition of used cars, on the other hand, can vary depending on how and where they were driven along with how the previous owner cared for and maintained the vehicle. Good deals can still be had, but make sure to inspect the vehicle for any serious mechanical problems before you buy it. Certified pre owned used cars are also great to check out and usually come with an extended warranty.
One of the biggest trade-offs between new vs used cars is the mileage. When purchasing a new car, you have the security of a vehicle with very low mileage, which equals less wear and tear. Plus, it’ll be under factory warranty, so the likelihood of needing to pay for any repairs is minimal.
Used cars will have a certain amount of mileage accumulated. Finding an amount of mileage you are comfortable with, when it comes to buying a used car, will be at your discretion as the buyer. Depending on the age of the car, buyers should try to stay away from cars that have more than 100,000 miles. Of course, if even half of that total mileage has been accumulated over a short period of time (say two to three years), then it’s clear the car has seen an enormous amount of usage and will be more susceptible to wear and tear damage.
Some of the best used car deals can be found by looking for a vehicle which is older but not too old and has some mileage but not an excessive amount. For example, a used car which is around 4 to 6 years old would normally have between 40,000 to 80,000 miles. This car would give you many of the newer model options and features with less wear and tear compared to high mileage vehicles at a price point well under a new car.
Mileage should also be considered if you’re looking to refinance. Lenders often have a maximum mileage requirement, like 120,000, for vehicle eligibility. The more miles on a vehicle, the lower its value, so keep this in mind if you are trying to refinance a car that has high mileage.
Buying a new car might be more expensive than a used car upfront. However, there are additional costs that come with buying a used car. One of these is car service checks. You will want to get the vehicle thoroughly inspected before you buy it.
When buying a used car, have a certified mechanic check the engine, frame, undercarriage, wheels, brakes, and other critical areas for damage or problems. You can often take the car to a shop or have a mobile mechanic meet you onsite. The pre-purchase inspection will cost a few hundred dollars and is well worth it to avoid buying a lemon.
If you’re buying a new car, you will likely not need a check or inspection at all since you should be the first owner. But if you do, the check may be performed by the car dealership anyway, and not factored into the price of your car. CPO vehicles fall into the same category and will come with a pre-purchase inspection.
No matter what, check the history of both new and used vehicles. It is easier than ever to check the history of your car, so you will be able to quickly address any problems or concerns. Using services like CARFAX or AutoCheck, you can use the vehicle identification number, or VIN, to have full transparency on the recorded maintenance history.
If you are buying the car at a dealership, they will often provide a CARFAX report along with the vehicle. You can also dig into the history of the used car yourself before buying for a small fee. Anyone can buy a CARFAX online for around $20 USD and look the vehicle up by its VIN. While this is another cost to factor in during the car buying process, it’s worth the upfront fee to negate problems further down the line.
Have you figured out if buying a new or used car is the right option for you? Once you have considered all of the things which factor into your decision, it is time to make the car purchase. Consider your personal goals and how they align with your vehicle choice. Pick the right tech options you want. Budget for how financing and refinancing will impact your finances. Find the right new or used vehicle for you that is in good condition with a clean history. See you on the road!
* This information is estimated based on consumers who were approved for an auto refinance loan through Caribou on or after 1/1/2022, had an existing auto loan on their credit report, and accepted their final terms. As of 4/30/2022, borrowers who refinance save an average of $101.54 per month. Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.
+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
++ Social security number is required should you choose to move forward in the loan application process.
** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. APR ranges from 2.79% to 36.00% and is determined at the time of application. Lowest APR is available to borrowers with excellent credit and only in certain states. Advertised rates and fees are valid as of 6/24/2022 and are subject to change without notice. Lowest rate of 2.79% APR only available with up to 36-month repayment term. Insurance savings will not result from lower APR.
Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Offers not available in MA, MD, MS, NE, NV, WI, WV.
Insurance products offered through Bindable and Caribou Insurance Services, LLC. Caribou is working with Bindable who owns MyLifeProtected and MassDrive Insurance Group, LLC, the licensed agent for all products.