If you love that new car smell, but not the sticker price, you might decide to shop around for used cars instead. But saving money by buying a used vehicle has other financial ramifications, including the car insurance quotes you get, which can be a big part of your monthly operating costs to drive it.
Before considering insuring a used vehicle, other financial considerations may, in turn, affect your insurance rates.
Used Isn’t Always Cheaper
A second-hand vehicle tends to be cheaper than a brand new one, but it also varies depending on the make, model, and age.
Even if there’s only a year between them the price differs because of depreciation. That means a new car will lose most of its value within the first few years of purchase. Depreciation also allows you to save money on a near-new car; if you don’t need the latest and greatest model, you might get a better deal on last year’s model without the latest bells and whistles. However, going with the used car might cost you in other ways.
Beware the Cost of Borrowing to Buy a Car
Many people don’t buy their vehicles outright; new or used, they’re likely to get a loan or enter a leasing arrangement with the dealership. That’s where the cheaper car may cost you more money.
Automakers tend to offer great incentives to get you to buy their newest vehicle, including low-interest rates — even no interest for a set period. They may also add in cash rebates, which makes both initial purchase price lower as well as your monthly payments when compared to a bank loan to help purchase a second-hand vehicle. It’s also easier to lease a brand-new car than a used one, although your monthly payments would be lower due to depreciation.
Weighing the Warranty Costs
The cost of buying a car doesn’t end with the purchase price. Maintenance and repairs are inevitable, and you need to know how you’re going to pay for that.
Warranties from the manufacturer come standard from the manufacturer. They tend to last longer and cover a lot of the systems and parts in the vehicle, which is especially helpful given how advanced today’s cars have become. Most used vehicles don’t come with a warranty, so you’ll be out of pocket for the parts and labour. Some dealers offer warranties on used cars, but the coverage is limited and expires earlier.
Warranty or not, replacement parts can get harder to find the older a vehicle gets. You may have to wait a while to obtain a part your car needs, and the cost to install it may leave you thinking you should have bought a new car instead.
Understand Your Operating Costs
The cost to operate a vehicle can vary depending on the make and the model, and whether it’s new or used.
Automakers are always innovating, which means a newer vehicle will run better in several ways. Lighter materials, smaller engines with more power, and improved fuel efficiency all contribute to better performance that you won’t get with a used vehicle. The older the car, the more you’ll notice a difference, especially since newer vehicles have more “smarts” in them, such as technology like automatic vehicle start-stop systems that increase fuel efficiency during high traffic periods.
Advances in technology also allow for better safety features, including Advanced Driver Assistance Systems (ADAS) with rear-view cameras and other sensors. These can prevent little fender benders in parking lots and other accidents. These are increasingly standard features, but if your used car is old enough, it won’t have any of them.
At the very least, a used car is going to be less fuel-efficient and cost you more at the pump.
Insurance Premiums Are Where the Rubber Hits the Road
Aside from how much you spend on gas, the other monthly cost you’re going to be most conscious of is your insurance premium. What you pay is influenced by whether you have a new or used vehicle, but which is cheaper insurance-wise is not clear cut.
Although the age and the value of your vehicle are the two factors determining your monthly insurance premium, there are a lot of variables. A used Porsche will cost you more to insure than a new Honda sedan, for example, but that new Honda will cost far more to replace if stolen than any used equivalent vehicle. It’s not just the market value of the car that will affect your insurance rates; how appealing it is to thieves will also affect your premium. Your make and model may seem conservative to you, but there could be a high demand on the black market for parts.
Safety features and on-board technology also affect your monthly premiums — many insurers offer discounts for vehicles with ADAS, such as lane-departure mitigation and blind-spot monitoring, to help lower your insurance costs. There are drawbacks to all this new safety technology, however. For instance, a bumper replacement is a pricier affair because the sensor technology in it may need replacing after a minor fender bender.
But while buying a used car means going without all these new safety features and the discounts many insurers will provide for having them, the coverage you need to purchase on an older vehicle will be less. Why? For instance, many people with an old car opt not to purchase comprehensive and collision coverage. Comprehensive coverage protects you for things like vandalism, theft, and damage from severe weather. Collision coverage insures your vehicle when it’s in an accident. Rather than paying the cost of these coverages for older, used vehicles, you can save money with the understanding you’re going cover the repair or replacement costs yourself if need be.
A new car, however, does need more coverage, which means the policy may be costlier than a used car. Of course, regardless of what you drive, your personal driving history, the level of coverage, the deductibles you choose all factor into what your premium is.
Buying a used car that’s only a few years old can reduce the sticker price and reduce the insurance premium without giving up all the new features, including the latest safety technologies. You may even be able to buy a used car that’s already depreciated in value but with the manufacturer’s warranty still in place, too. Regardless, before buying any used vehicle, it’s worthwhile to consider getting a pre-purchase inspection of it.
Buying last year’s model can still give you that new car smell and even some of the features, while also allowing you to shave money off the sticker price and possibly auto insurance. But whether you buy a new or used vehicle, you’re still going to pay the same price for parking.