The price of new and used cars have both skyrocketed in the past year and a half. And while there are nuanced reasons for this in both markets, it all boils down to an issue with good old supply and demand.
With the price of new and used cars so high these days, it might be difficult to decide which is best for you.
Car prices have been on the rise in the past year and half due to a high demand and a limited supply. When the pandemic essentially shut down the economy, car sales dropped drastically (we’re talking 30% in just one year). And when the demand decreased, car dealers responded by reducing their inventory.
This reduction in inventory caused carmakers to reduce the amount of cars they were making, and the amount of materials and parts they were using dropped. Notably, they cut back on ordering semiconductors, and the manufacturer's cut back on making the semiconductors (due to lack of demand and a lack of workers).
Fast forward a few months to when the economy started to reopen. All of a sudden interest rates dropped and people were ready to start making big purchases again. That’s when the demand for cars increased again. Only now the supply wasn’t there for them to buy.
Since then it has been a scramble to try to keep up with demand. This supply and demand issue coupled with rising inflation is making car prices soar. And it seems like this will be the case for the foreseeable future.
Whenever the demand for new cars is high, it usually means that the demand for used cars is high as well. This is simply because when people get outpriced of something new, buying used is the next best option.
When you get a new car, you can order exactly what you want and have it made to order. The make, model, color, trim level, accessories–you name it. You often have to wait longer, but it may be worth it to you.
When you get a new car, you can get the latest technology in terms of entertainment and safety. Since navigation systems and entertainment systems become out of date relatively quickly, a car that is only a few years old may already be out of date with its technology. And with the safety requirements on new cars becoming more and more stringent, a newer car is much more likely to be safe.
As technology advances, car makers are able to constantly push the bar when it comes to higher fuel efficiency. With the price of gas these days, that can mean a lot of savings.
When you get a new car, you can get financing (and any great financing deals that accompany it). This might be necessary for you depending on your financial situation. And if you are unable to get a great car loan APR right now, you can always refinance your car loan in the future. Having a high credit score and good debt-to-income ratio can help you secure a lower car loan APR.
When you buy a new car you get the manufacturer’s warranty that comes with it, something that is most likely not available for a used car (if the used car is new enough and the warranty is transferable, consider yourself lucky!). This can save you a lot of money should anything go wrong during the first few years you own the car.
This seems self explanatory, but it’s a great reason to buy new. When you buy a new car, you can be certain that there is no hidden damage. With a used car you can never be totally sure that your car hasn’t been in an accident. There is a lot of comfort unknowing that you have been the only owner of your car.
Even with the rising prices of used cars, buying used is still cheaper than buying a new car. This means you can afford to get a nicer car that is slightly used, as opposed to getting a base model that is brand new.
In general, used cars cost less to insure than new cars. Even if the upfront cost isn’t as low as you would like, you can save a lot of money over the coming years.
While cars depreciate no matter what, used cars depreciate at a slower rate. This is because cars depreciate the most in their first year, then gradually level off their depreciation rate. A new car loses value the second it drives off the lot, and loses about 20% in its first year alone. Avoiding the first few years of the highest depreciation value can ensure that your asset retains its value.
If you have a good credit and a good debt-to-income ratio, you may be able to find a low cost used car loan. Going to a certified pre-owned dealership will help you with this. You might need to put down a larger down payment, but your monthly payments will still be manageable and much less expensive than if you were to buy new.
Look at all of the advantages and disadvantages of buying used vs. buying new. Think about what the most important factors are to you. If you are looking to save the most amount of money and are comfortable with doing minor repairs and maintenance yourself, buying a used car might be a great option for you. If you want something that is a bit more reliable and customizable, and you have a little extra money to spare, buying a new car might be the best option.
Deciding between a new car and a used car can be a hard decision. But if you have a good credit score, financing might be an option for you either way.
Looking to save some money on your monthly car payment? Consider refinancing your car loan with Auto Approve. We have relationships with lenders nationwide, so we can get you the best rates and deals. Don’t wait to start saving money, get a free quote today!