Do you want to buy a car? But not sure whether to buy a new car or a used car? It happens with everyone. Apart from the budget, you have to consider reliability and the depreciation cost. It is an important decision because it will make a significant difference in your finances. Of course, a new car will be more expensive than a second-hand car. Make sure that you can manage to pay for it outright.
No matter which car you want to buy, you can apply for a loan. There are various car finance options like personal loans, hire purchase and personal contract purchase. Hire purchase, and personal contract purchase will require you to make a down payment, which has to be at least 10% of the car value. If you are planning to buy a car, you start stashing away money as immediately as possible. The following factors will help you make the right decision.
The size of down payment
The down payment depends on the value of the car. If your credit score is good, you will get a lower-interest deal, and hence it will be much more manageable even if the loan-to-value ratio is 90%. If you buy a new car, it is conspicuous that you will pay down larger funds. The rule of thumb says that you should research car models beforehand and start putting aside money for a down payment.
Your finances play a paramount role to decide on a car model. If you do not have money to pay outright, you will turn to direct lenders to finance it. However, in the case of impaired credit standing, car finance with bad credit may be a bit expensive. Consider loan calculators to find out the total cost and then decide whether you could afford a new car or an old car.
Depreciation is one of the most significant factors to consider which option will suit your budget. Whether you buy a new car or a used car, it will continue to depreciate.
Depreciation can suck a large chunk of money out of your pocket. As soon as you take a new car to the road, it loses 20% of its value, and at the end of the first year, it reaches 30% due to normal wear and tears.
For instance, you buy a new car for £40,000. You sell it three years later for £20,000. The car has cost you half the value. However, if you buy a three-year-old car, you will have to pay £20,000, and when you sell it three years later, the resale value will be £14,000. The depreciation cost will be only £6,000. Before you make any decision, consider the resale value too.
The maintenance cost of a new car is much lower than in an old car. For a couple of months, in the beginning, you do not need to invest money apart from fuel, and you will get free maintenance service offers. However, if you buy a used car, a large chunk of money will go in upkeep cost.
Unlike depreciation, repair and maintenance cost is hard to bear. If you are looking to buying a used car, make sure that you will not fall off your budget.
Advantages offered by a used car
A used car is undoubtedly difficult to find, and it requires more significant investment in repair and maintenance, but it provides a few advantages.
- Insurance costs will be lower because of low worth. You can even drop collision and comprehensive coverage that pays for the repair of your car. You will save a lot of money.
- The registration cost of the car will be lower than that of a new car.
- You can easily buy an upgraded model because you can save at least 20% on the purchase price.
Advantages offered by a new car
Here are the benefits that a new car offers:
- Since you are buying a new model, you do not need to take it to a mechanic for inspection. As soon as you make the payment to a car dealer, you can get behind wheels.
- If you buy a new car, you will get advanced features, more comfort, and safety. If you are fond of upgraded technology, a new car will be a better option.
Deciding on a type of car model is no picnic. Factors mentioned above will help you determine whether you should invest in a new car or an old car. If you are trying to finance your vehicle, make sure that you will manage to afford the loan because bad credit rating accounts for an expensive deal. No matter which model you invest in, your decision is right as long as your finances do not get disturbed. If you are not able to make a decision, you can take guidance from a financial counselor.