Used Car vs. New Car: Which Should You Buy?

Pros and Cons of Buying a New Car

We all love that new-car smell, but buying a new car has its downsides too.

Pros

• More affordable financing: Interest rates for new car loans tend to be lower than rates for used car loans. Although you'll likely need a bigger loan for a new car, a lower annual percentage rate (APR) could save you money over the loan term.
• Lower repair and maintenance costs: New cars are less likely than older ones to suffer mechanical issues and are typically warrantied for three years or 36,000 miles, whichever comes first. Many carmakers now offer much longer warranties, potentially delivering major savings on repairs.
• Safety and convenience features: New vehicles come with the latest technology, which can keep you safer on the road and make driving more enjoyable. If you want features such as head-up displays, automatic emergency braking or parking assist, you're more likely to find them in new cars.
• More reliable: New cars usually break down less often than older cars, providing peace of mind that you won't get stranded on a lonely road at night.
• Customizable: You can usually choose from different options packages when buying a new car or order your vehicle factory-direct for even more options.

Cons

• Higher price: The average price of a new vehicle reached $47,542 in the third quarter (Q3) of 2024, according to Edmunds data. Compare that to the average $27,177 price of a used car. With average monthly payments of $734, buying a new car could stretch your budget beyond your comfort zone.
• Rapid depreciation: Vehicles depreciate, or lose value, as they get older. New cars can lose 20% or more of their value in the first year, and 10% more in each of the following years.
• Higher down payment: To offset depreciation and to avoid being upside down on your loan, it's wise to make a down payment of at least 20% on a new vehicle. For the average new car, that's over $9,000—a sum you may not have available.
• Higher taxes and fees: The more your car costs, the more sales tax you'll pay at the dealership. Registration fees are also highest when a car is new.
• More expensive car insurance: You'll generally pay more for insurance on a new car than an older one, because new cars usually cost more to repair or replace.

Pros and Cons of Buying a Used Car

Purchasing a used car has benefits and drawbacks.

Pros

• Lower price: With an average price over $20,000 less than a new car, a used car is usually easier on your budget. Even if you can't pay cash for the car, your loan amount and monthly payments will typically be smaller than those for a new car.
• Less depreciation: Depending on its age, a used car may have already experienced the bulk of its depreciation. After five years, a car is typically worth about half the price when new; after 10 years, depreciation essentially stops. Purchasing a 5-year-old car could save you money on a relatively new vehicle that won't lose much more value.
• Lower down payment: It's recommended to make a down payment of at least 10% on a used car. On average, that's a $2,717 down payment—much more manageable than that for a new car.
• May be warrantied: Dealerships often put used cars through inspection and make necessary repairs before selling them as certified pre-owned vehicles. These cars typically come with an extended warranty, which can reduce repair costs and provide peace of mind that major issues will be covered.
• Lower taxes and fees: You'll pay less in taxes at the dealership for a used car. Registration will be cheaper too.
• Cheaper insurance: Typically, older cars cost less to insure than new ones because they're worth less.

Cons

• Higher loan interest rate: Even though your used-car loan may be smaller than a loan for a new car, you'll probably pay a higher APR. There may also be fewer loan choices, and some lenders limit used-car loans to vehicles under a certain model year or mileage amount.
• Higher maintenance and repair expenses: Older vehicles are more likely to have mechanical problems requiring expensive repairs. Your used car may be cheaper to purchase but costlier to maintain than a new vehicle.
• May not be warrantied: In most cases, a vehicle warranty is transferable as long as the warranty is still valid (meaning the mile or year limit hasn't been exceeded). However, unless the used vehicle you're buying is a recent model with few miles on the odometer, it's unlikely the warranty still applies. You can purchase an extended warranty for the car later on; these warranties are often expensive and have significant restrictions on what they cover.
• Fewer features: A used car may lack the latest bells and whistles, and the older the vehicle, the more outdated it's likely to be. A state-of-the art infotainment system may not matter to you, but a vehicle without backup cameras, lane departure warnings or other safety features could increase the chance of an accident.
• Lengthy purchase process: Compared to buying a new car, shopping for a used car is lots of work. You'll need to research prices and search for vehicles that fit your criteria. When a suitable vehicle pops up, you'll have to drive around to dealerships or meet with individual sellers, order a vehicle history report on the car's past and arrange for a mechanical inspection.

Should I Buy a New or Used Car?

When deciding whether to buy a new or used car, consider your budget, your vehicle needs and your priorities. For example, if safety and reliability matter more to you than cost, you might be willing to pay top dollar for a new vehicle with the latest safety features. On the other hand, if budget is your biggest consideration, you may find many of the features you want in a more affordable used car.

Research the average price of the car you want and subtract your down payment amount to estimate what you'll need to borrow. Then shop for an auto loan to find the best rate. First, check your credit report and credit score; a higher score could help you qualify for lower interest rates. You can shop for car loans online at lenders' websites or use an online auto loan marketplace to gather loan offers from several lenders.

Use Experian's car payment calculator to see how different loan amounts, loan terms and interest rates affect your monthly payment, and how much interest you'll pay over the life of the loan. If it turns out your dream car is too expensive, you may need to save up for a bigger down payment, choose a longer loan term or choose a different car.

More Car Loan Statistics

As you shop for a vehicle and auto loan, the charts below provide an idea of what to expect in terms of car payments, interest rates and more.

Average Car Payment by Credit Score

Your credit score impacts your auto loan interest rate, with higher scores usually translating to a lower APR. Your loan's interest rate is one factor determining your monthly payment, but the loan amount and term matter too. As of June 2024, the average new car monthly payment was $734; the average used car payment was $525, but this can vary, as the chart below indicates.

Source: Experian data as of Q2 2024; VantageScore 4.0 credit score used

Average Loan Amount by Credit Score

As of June 2024, the average new car loan amount was $40,927, and the average used car loan was $26,248. A higher credit score could make it easier to get a larger loan, giving you more purchasing options. As the chart below shows, car buyers with lower credit scores tend to get smaller loans.

Of course, a larger loan can also mean a bigger monthly payment. To borrow less (and lower your monthly payment), you can save up for a larger down payment, choose a less expensive or used car, or trade in your old car towards your purchase.

Source: Experian data as of Q2 2024; VantageScore 4.0 credit score used

Average APR by Credit Score

Borrowers with good credit (also called prime borrowers) may qualify for lower interest rates on auto loans. Those with poor credit (also called subprime borrowers) typically find it harder to get an auto loan and pay higher interest rates. Below, you'll see that a borrower's credit score can have a dramatic impact on loan APR: Borrowers with the poorest credit scores pay more than triple the interest rates of borrowers with excellent credit.

Source: Experian data as of Q2 2024; VantageScore 4.0 credit score used

Average Loan Term by Credit Score

When comparing loan offers, it's important to consider both the monthly payment and the overall cost of the loan. A longer loan term lowers your monthly car payment, but the longer your loan, the more you'll pay in total interest.

Suppose you're a prime borrower getting a loan of $39,172 at 6.87% APR to buy a new car. A 48-month loan has monthly payments of $935.66; in total, you'll pay $5,739.75 in interest.

Stretching the loan term to 84 months brings your monthly payment to a more manageable $588.72, but increases your total interest to $10,280.83. If you can swing it, the shorter loan term would save you $4,541.08

Source: Experian data as of Q2 2024; VantageScore 4.0 credit score used

The Bottom Line

Whether you're purchasing a used car or a new car, chances are you'll need an auto loan to make it happen. Good credit increases your odds of getting a loan with a low APR. If your credit score isn't where you want it to be, take some time to improve it before heading to the dealership.

To help increase your credit score, work on bringing late accounts current, paying bills on time and paying down high-interest debt. Consider signing up for Experian's free credit monitoring service to track your progress. Your efforts could pay off in more loan options, lower interest rates and a more affordable car.