Auto Sales 101 – Is It Better to Buy a New Car or a Used Car or Truck?

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I was in the market just a month ago to replace one of my family’s vehicles and let me tell you – there are more choices now than ever. Crossovers, SUV’s, hybrids, etc.… But what it all boils down to is what price range you need to be at and whether you will be obtaining a loan with a down payment and monthly payments.

Most people (95% according to the US Banking Assoc.) will be buying their next vehicle with a loan. New cars will have lower interest rates. The range of the interest rates that you will be offered vary greatly depending upon your credit. If you have excellent credit (a FICO score of 720 or higher), then you’ll have no problem getting the best rates out there. There are even cut rates or zero percent incentive rates from the manufacturer for those with excellent credit.

For those with average credit scores (usually 600 – 710 or so), you will still get a reasonable rate, but on a new car, you might have to take the incentive money instead of the buy down or zero percent rate. Don’t feel bad if you are in this range – most people (70%) do not qualify for incentive rates and therefore take the manufacturers rebates instead.

With these incentives on new cars (even if one does not qualify for the incentive or buydown rates and takes the regular rebates) you can get a pretty good deal on almost any new car. What you must keep in mind though is the fact that new vehicles drop drastically in their value over the first year of ownership. This is fact, and most will drop anywhere between 25 and 30% in value in the first year (this is commonplace with new auto sales, and car salespeople are known to lie about these figures).

So What to Buy? New or Used Vehicle?

If you tend to change cars often (like purchasing a new car every two or three years, then you may be better off with a used car). Another reason why many people buy used cars is that you can get a more up-fitted or fully loaded vehicle with far more options for less money.

You can go up a class of car and have it come fully loaded with a used car with low miles for less than you would pay for your new car. For instance, if you are looking at a brand-new Toyota Corolla or Honda Civic you can get low mileage used Toyota Camry or Honda Accord with leather, V6, aluminum wheels and loaded for a few thousand less.

If you read Consumer Reports magazine, you will see that nine times out of 10 it’s a better deal for you to buy a used vehicle rather than a new vehicle. Yes, with the new vehicle you get a brand-new vehicle that no one else has owned, and you have a full new car warranty. But with a low mileage used the car you can also get a warranty that is every bit as good as the one with the new car for less money.

Once you’ve decided to buy a used vehicle or a new vehicle, whatever be the case, you then still must go and negotiate with the car dealership(s). Watch out for hidden fees – especially the Documentation or Doc fee. Some states have already limited this to $50 (like in California where the state senators found the Documentary fees to be nothing more than a shady way of extracting more money from unsuspecting customers). Other states like North Carolina have car dealers charging ridiculous amounts upwards of $500 or more for these “Doc” fees.

Hopefully, all states will either make Doc fees illegal or put a cap on them like California. There is nothing received for these Documentation fees, and it is pure profit for the car dealership. Be sure and shop around and make sure you have any used car checked out by a knowledgeable mechanic (this is basic and an Auto Sales 101 requirement). I always have a used car checked over by mechanics, and you wouldn’t believe the stuff I’ve found that way – previously wrecked vehicles that didn’t show the wreck or damage designation on the Carfax, inconsistent or wrong parts, missing parts, etc.…

Related – Tips for Buying a Used Motorcycle

Generally, with a low mileage used cars and when you purchase from a car dealership with a full warranty, you have much less to worry about. Still, be sure and shop around. Shop the car price, warranty price (it is a general rule that all car dealerships double the warranty price they sell to you – so the warranty price is very negotiable, and you do not have to purchase it right then and there – that is one of the biggest lies going on in almost every finance manager’s office).

Shop around and get a car that best meets your needs and budget. Don’t let a slick sales staff (including the finance manager) talk you into a higher price or payments than you can afford. Stick with your budget and use an online car website (another great Auto Sales tip everyone should use) to get the actual value of the vehicle you are looking at and a good idea of the price you should pay. Don’t go by what the sales staff says – their job is to get you to pay as much as possible for that car or truck.

Do your homework, and you will save thousands of dollars? It is a fact that car buyers that do their homework and negotiate hard on their new or used vehicle purchases save on average 2,500 dollars more than those that don’t and negotiate a little (AAA). Save money – do your homework, shop around, have any used car checked out by a good mechanic, be aware of car dealerships charging ridiculous Documentation fees, and negotiate – negotiate – negotiate and you will get a great deal regardless of whether you are buying a new or used vehicle or truck.

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