Buying a car can be pricey.
The average used car costs over $33,000,¹ while the average for a new one is around $48,000.² When it comes to transportation (or anything else for that matter), it only makes sense that you’d want to save as much money as possible. But are there times when buying a used or budget car is a better investment than buying a new one? Here are some questions to ask yourself before you make that purchase.
How much mileage can you get out of this car?
One of the big things to consider when researching a budget car is how many miles of prior travel you’re paying for. Buying a cheap (although unreliable) car that breaks down on the regular due to wear and tear may give you fewer miles for your money than paying more for a car that might last 10 years. If you’re committed to buying used, you’ll probably want a mechanic to inspect the car for issues that might affect your car’s lifespan.
How much will maintenance and repairs cost you?
You might be one of the few who know someone with the auto know-how to keep an ancient car running for years. However, the average person will need to have car problems repaired at a professional shop, which can become expensive if it constantly needs work. This can be especially costly if you sink thousands into maintenance only for your vehicle to die for good earlier than expected. It’s worth considering that buying new might save you a huge hassle and potentially give you more miles for your money.
How does the interest rate compare for a new car vs. used?
The uncertainty involved with buying a used or budget car can increase the cost of financing. Lenders will often charge you higher interest for purchasing a used car than they would a new one.³ Having a high credit score will improve your rates, but that extra cost can still add up over time.
What you’re trying to avoid is buying a used piece of junk that requires constant maintenance at a shop, has a higher interest rate, and gives out too soon. There are definitely used and budget cars out there that have great value. Just be sure to do your research before you make such a significant investment!
¹ “Consumers are shelling out an average $10,000 more for used cars than if prices were ‘normal,’ research shows,” Sarah O’Brien, CNBC, Jul 21 2022, https://www.cnbc.com/2022/07/21/consumers-paying-average-10000-above-normal-prices-for-used-cars.html
² “The Average Price of a New Car Is Creeping Toward $50,000,” Brad Tuttle, Money, Sep 14, 2022, https://money.com/new-car-prices-average-50000/
³ “Why Do Used Cars Have Higher Interest Rates?” Doug Demuro, Autotrader, Oct 13, 2013, https://www.autotrader.com/car-shopping/why-do-used-cars-have-higher-interest-rates-215730