Should You Buy a New or Used Car (or the Middle Child)?

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Even with poor credit.

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - July 23, 2020

One of the biggest decisions to make while you’re car shopping is whether or not to buy a new or used vehicle. There’s also the middle child, the certified pre-owned (CPO) option. Whichever direction you choose is going to depend on your situation, and we can help narrow it down for you.

Your Next Car and Your Credit Score

Your ability to buy your next car largely depends on your income and your credit score. Many traditional lenders, such as banks, may not consider you for financing if your credit score is poor. With bad credit, you’re more likely to get financed for a used vehicle due to the lower sticker price.

While it’s nice to consider the benefits of a brand-new car, the high sticker price usually means a higher monthly payment, and some other risks to consider. Buying used may have a lower sticker price, but these vehicles have their own considerations to keep in mind, as well. There’s also the sweet middle child to check out, certified pre-owned cars, which are gently used vehicles.

Buying a New Car: Pros and Cons

As you’re probably well aware, buying a new car comes with a price. But to many borrowers, the price is well worth the security that a new vehicle can provide.

Pros

When you buy new, it usually means you’re getting the latest bells and whistles. There’s no mileage (aside from possible test drives), no wear and tear, and of course, that coveted new car smell. You also can get the newest infotainment systems and technology, a fresh interior, the peace of mind that comes with knowing the vehicle has a clean title and no previous owners, and a factory warranty.

A warranty usually covers large repairs, but could cover routine services or come with some with other perks, depending on the manufacturer. New cars are also typically covered under lemon laws, which help protect buyers from keeping a new vehicle with repeated issues. Used cars aren’t covered by these laws in most states.

While a new auto loan could come with a high monthly payment, new vehicles typically qualify for the lowest interest rates (which could be as low as 0% with the best credit scores), since they’re more reliable.

Cons

With new cars, the average loan amount is around $30,000 – it’s not cheap to drive a new vehicle. You're also paying for deprecation, which isn’t great. Deprecation is the silent killer of a car’s value. Once a vehicle is driven off a lot, its value immediately declines, going from “new” to “used” the moment you take it home. New cars tend to lose around 20% of their value in the first year of ownership.

This may not be a huge concern if you intend to drive the vehicle for a while, but a big drop in value can make it more difficult to sell the car later if you're in a negative equity position. Negative equity means you owe more on the vehicle than it’s worth, and it’s common for new car owners.

Financing

If you’re considering a new vehicle, check your credit scores and do some rate shopping. The captive lenders of automakers can sometimes offer great deals on their new cars, but you’re going to need a good credit score to qualify for the best rates and opportunities.

Additionally, your financial institution could offer a lower interest rate as well, if you have a good credit score. With a lower score and lower income, you’re not very likely to get approved with a captive lender or traditional lender for a new vehicle.

There are lots of makes and models, with their prices varying, so it's not impossible for bad credit borrowers to get into a cheap used car, if they choose the right model and lender for the job.

Buying a Used Car: Pros and Cons

The overall value of a used car can vary wildly – it could be a clunker or it could be a reliable vehicle that makes it well past 200,000 miles. They can be a little unpredictable, but in general, you can expect to pay less for a used car.

Pros

Used vehicles are generally more affordable than new ones. They've likely already seen their steepest drop in value, which means the price is usually lower than that of a brand-new car. This also means that you’re likely to spend less time in negative equity. A lower sticker price also means a lower monthly payment.

Another bonus to buying used is that they’re cheaper to insure. While every financed vehicle is required to have full coverage auto insurance during the loan term, used cars tend to come with less expensive insurance premiums.

Cons

Used vehicles don’t normally come with a factory warranty, since most expire after so many years or once they hit a mileage amount. This means that you may be on the hook for any possible big repairs, and you’re going to have to pay for regular maintenance out of pocket. There are extended warranties available, but these also come at a cost. Another cost to consider is that they’re more likely to have higher interest rates than new ones, since it’s hard to pinpoint a used car’s true value.

Other cons to a used vehicle are the overall wear and tear and the higher risk of the car deteriorating down the line. This also can lead to a lower value the more you drive it – remember, deprecation doesn’t ever stop.

Financing

If you have a less than perfect credit score, you’re more likely to get approved for a used vehicle simply because the financing amount is probably lower.

If you work with a bad credit auto lender, sometimes called a subprime lender, they first determine the monthly payment you qualify for, and then you choose a car. Since poor credit borrowers can’t normally qualify for the biggest loan amounts or the best deals, qualifying for a used vehicle is more practical to aim for.

Buying a CPO Car: Pros and Cons

Then there’s the in-betweener of used and new cars: CPOs. They’re often called the cream of the crop in used vehicles.

Pros

CPO cars are typically gently used, and many are just coming off lease. All CPOs, though, are refurbished, inspected, and then sold. Since they’re used, they do tend to come with a lower sticker price and have likely already seen the biggest hit in value – but they aren’t usually as cheap as a traditional used vehicle.

This is because CPO cars are inspected by a manufacturer-certified mechanic, and must meet a number of qualifications before it can earn the stamp of approval to become a CPO. Typically, CPO vehicles have under 60,000 miles, are only a few years old, and are covered under some type of warranty. There’s usually less wear and tear than a normal used car, and just tend to be cleaner in general due to being newer with less mileage.

Cons

CPO vehicles aren’t as cheap as your typical used car, since they tend to be newer and come with some kind of warranty. However, it's still a used vehicle and it's recommended that you review its possible accident history, and any possible repairs or issues it’s had in the past.

While CPOs are inspected, they’re still used and there’s more risk of deteriorating than a new one. Another cost to consider is the higher interest rate compared to a new car. While CPOs are generally newish, they’re still used.

Financing

If you’re a bad credit borrower, you may or may not qualify for a CPO, but it depends on your credit score and income. You may have better luck qualifying for a CPO than a new vehicle, but this also depends on the car you choose, and your unique credit situation.

Ready to Start Car Shopping?

When you've got bad credit, the car shopping experience can be a lengthy and stressful one. Not only do you have to choose between new, used, and CPO, you also have to secure financing and find a dealership. Why not just skip all that stress and start with us?

Here at CarsDirect, you can browse new and used vehicle prices on our site, and we work to match borrowers of all credit types to dealers with the lending resources they need. If you want to get the ball rolling, fill out our free auto loan request form, and we’ll look for a dealership near you.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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