New or Used? Which Is the Smartest Purchase in Today's Market?

The vehicle market has been skyrocketing with prices soaring to unprecedented levels. In today’s market new cars are rarely selling below sticker price. The higher costs have pushed more people towards used cars affecting the supply and prices in that market as well.

Why Are Cars So Expensive?

Lockdowns, restrictions, labor shortages, and supply chain issues have created challenges for auto manufacturers. Auto plants have had to shut down as part of the effort to curb the spread of covid-19. The pandemic has caused a general slowdown as the world struggled to find it’s new normal.

Employee quarantine requirements have affected the labor force in all sectors. Fears of getting sick have pushed many workers away from jobs in crowded factories. The shrinking workforce has further reduced the ability of auto manufacturers to produce new vehicles.

These factors have influenced the operations of auto manufacturers, and they have affected the producers of the components and raw materials required in the car production process. Vehicles need a large variety of parts and raw materials. Shortages of semiconductors as well as foam, rubber, resin, and steel have caused bottlenecks and slowed down production.

As a result, fewer cars are rolling off assembly lines shifting the balance between supply and demand. Whenever supply dwindles more than demand, prices go up and that is what we’ve been seeing in the vehicle market. New cars rarely sell below sticker price anymore and used car prices have seen unprecedented inflation.

In a seller's market it’s best to delay making a purchase until more favorable conditions but that may not always be possible. If you’re in need of a vehicle now, it’s likely you can’t wait long enough for prices to go down. You’ll have to be flexible as well as open minded and put in extra effort to get a decent deal.

One way to shave a few dollars off the purchase price is to buy a used vehicle instead of a new one. Is buying used the smartest choice in today’s market? What are the benefits of buying a new or used vehicle?

Advantages Of Buying A Used Car

A used car will always be less expensive than it’s new counterpart. These tough vehicle market conditions have made vehicles less affordable, limiting options for many consumers. Buyers with a smaller budget can increase the number of vehicles within their price range by purchasing a used car.

A less expensive vehicle is cheaper to insure because if the car is written off, it will cost the insurance company less money to replace it. The trials of the last couple years and current continuing challenges have increased the rate of inflation decreasing the buying power of a dollar. It’s a good time to look for ways to reduce expenses and paying less for insurance can make a sizable difference. Buying used for the insurance savings is also a good strategy for young drivers and individuals with a low insurance rating.

Used vehicles depreciate much more slowly than new cars. The value of a brand new car drops by about 20% in the first year. For the next 4 years the car loses about 15% of its value each year. Because cars depreciate faster when they are new, buying used allows you to recoup more of your money if you ever decide to re-sell the vehicle.

The greatest single hit you can take in this market is paying top dollar for a brand new car only to end up with a vehicle that is worth a fraction of what you paid in just a few short years. Prepare for the car to depreciate by more than half its value but also suffer a major price adjustment due to market conditions. If you’re planning to one day sell the car, buying used is a good way to minimize your losses when vehicle prices go back down again.

Advantages Of Buying A Brand New Car

Unless you’re planning on buying a car outright, you’ll have to consider how you will finance the vehicle. New cars tend to get better interest rates on financing and often come with additional financing options because a used car comes with more risk for lenders. If the car turns out to have serious problems it may become worthless and the lender won’t be able to recoup their losses if you default on your loan.

Financing a large purchase like a vehicle can add up to a substantial cost for buyers. It’s smart to shop around for your auto loan and buying a new car can open additional options. People with a low credit score might be able to save by buying new and increasing their borrowing choices.

New cars come with a warranty from the manufacturer which protects you from factory defects and vehicle malfunctions. In these trying economic times it’s nice to have the security of a good warranty and knowing that you won’t have to pay for costly repairs out of pocket. This is especially useful for individuals that may not be mechanically inclined.

When buying a brand new car you can expect the latest technology. Furthermore you can often choose which features matter to you and customize your vehicle. Buyers can use this to their advantage by choosing basic options and not paying for expensive upgrades they don’t need.

Inflated prices and less money to go around make a strong case for used cars but you have to look at all of the factors affecting your personal situation. The cost of buying a car goes well beyond the price of the vehicle. Financing, insurance, and maintenance costs are substantial expenses and buyers would be wise to consider how their buying power is impacted by each of these factors.

High vehicle prices mean taking extra care with your financing. Making poor choices will mean that you’re paying top dollar for a car that may be worth significantly less in a few years. This may impact you further down the road by reducing your options and buying power when it’s time to purchase your next vehicle.