Better to Buy Pre-Owned Car, or New Car?

First time car buyers have a choice of buying a brand new car, or buying a used car. Which is better?

There are advantages and disadvantages to either choice. Most people would rather have a brand new car with its new-car smell and latest style, but there are reasons that a new car might not be the best choice. Let’s take a look at the pros and cons of buying new and buying used.

Advantages of Buying New

• You get a brand new car with new-car feel and smell
• You get the latest style and technology
• You get the latest safety equipment
• You get a full manufacturer’s warranty
• You get Lemon Law protection
• You get lowest loan interest rates, if you qualify
• You get the option to lease
• You may get special manufacturer-sponsored pricing and financing

How much down payment do I need for my car loan?

Until relatively recent times, it was standard for car dealers and finance companies to require at least 20% down payment on the purchase of a car. It was for a good reason.

Because cars depreciate in value from the moment they are driven off a dealer’s lot, a down payment helps offset that rapid decrease in value, which may keep the loan from becoming “upside down.”  It also protects the loan company or bank because, if they have to repossess the vehicle, they have a smaller risk of losing money.

Things are different now
Auto manufacturers and dealers are now very competitive and business must be fought for. They are willing to take risks that were unheard of just a few years ago. In many cases, down payment requirements have been reduced or eliminated altogether, primarily for customers with good credit.

If you still owe more on your loan than your car is worth, you are upside down.

You may still be able to buy another car if you are upside down on your previous loan.

There are two ways to go about it.

One way to buy with an upside down loan
You could sell your old car but you will have to add extra cash to fully pay off your old loan. You’ll need to pay off your loan so that you can give a clear title to your buyer. However, coming up with extra cash might be a problem, especially if you are upside down by a large amount. For many people, this solution is not possible.

Let’s look at some other ways.

What to Pay for New Cars — What’s a Good Price?

All new cars have a window sticker that displays the manufacturer’s suggested retail price (MSRP). It may also include destination charges, dealer-installed option prices, and other miscellaneous charges. The total of these charges is the price you would pay for that vehicle, less sales tax, without any discounts or rebates.

All but the manufacturer-specified destination charge can be negotiated. Manaufacturers charge dealers this fee for vehicle delivery, and dealers simply pass it along to customers without markup.

Price can be negotiated for most vehicles. Unless the vehicle is a hot seller and in short demand, it’s usually possible to get dealers to discount the MSRP. But, how much? What’s the best price I can expect?

Here’s your strategy for negotiating price.

Many people choose to trade in a car when buying or leasing another car. But how does the trade-in process work?

Here is how. Car dealers buy your old car from you and give you credit toward the price of a new car. The trade-in credit is like a down payment and reduces the price of your new car, making your monthly payments smaller. The dealer then puts your old car on his used-car lot to sell, or he sends it to a dealer car auction where another dealer will buy it to put on his own used-car lot.

Dealers make a lot of profit on selling used cars they’ve taken as trade-in. They pay the trading customer a low wholesale price, and sell the car for a higher retail price. That’s how they make their money and stay in business.

It is to a dealer’s advantage to pay as little as possible to the trading customer. Therefore, smart customers will have already done research to determine the fair wholesale value of their trade-in vehicle.

Since dealers only pay wholesale value for trade vehicles, customers can make more money by selling the vehicle themselves, rather than trading it, although it’s more work.  The money from the sale can then be used as a down payment on a new vehicle, reducing payments even more than if they had traded. Smart sellers will have done their research to know the fair retail value of their car.

Where to find trade-in values and retail values? Online, you can use Kelley Blue Book as a good source of average car values. Just keep in mind that used car trade-in values are not absolute and can vary widely between dealers, different parts of the country, and a dealer’s interest in the vehicle. The values of used cars changes often, usually faster than any value guide can keep up.

What if you still owe money on your trade vehicle? Can you still trade it?

Yes, but watch out. If your loan payoff is less than your car is worth as a trade-in, the dealer will take your car, pay off your loan balance, and apply the remainder as a credit toward your new car. This remainder is your positive trade equity.

However, if you still owe more money than your car is worth as a trade-in, you are “upside down” and have negative trade equity. Although some dealers may not explain it to you, he’ll take your car, pay off your loan, and will add the negative equity back into the price of your new car, making it more expensive and making for higher payments, not lower payments. It’s called “rolling” part of your old loan into your new loan. It’s like you’ll be paying off two loans at once. Rolling over negative equity from an old car loan is almost guaranteed to put you into an immediate upside down situation with your new car.

Sometimes, if you have too much negative equity in an old loan, you may find it difficult to get a new loan.  Banks and loan companies don’t like to loan you more money than a car is worth. The only solution is to make a cash down payment to offset some or all of the negative equity.

The other part of getting a good deal with a trade-in is getting  a discounted price on the new car you are buying. Do your homework and get some online price quotes from services such as Yahoo! Autos . The quotes are easy and quick to get, so it pays to get multiple quotes and compare them for the best deals.

Don’t let a dealer tell you he’s giving you more than your old car is worth in a trade because you’re probably paying too much for your new car. The best deals come from getting a fair trade-in price on your old car along with a fair price on your new car.

The car trade-in process is usually simple and uncomplicated, but it can get tricky when you still owe money on your old car — especially if you owe more than the car is worth.

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New Car, First Car

If you’ve decided that your first car will be a brand new car, there are things you need to know about the buying and financing process that makes it different from buying a used car.

New cars – only from dealers
All new cars must  be purchased from state-licensed and manufacturer-authorized new-car dealers. It’s the law. It’s the only way you can buy a new car.

If a car has never been titled or registered, it’s considered to be a new car. Even if you initiate your purchase through an Internet car buying service, or through a buying service at warehouse stores such as Sam’s Club, the car actually comes from a local new-car dealer.

Should I keep my old car and fix it up, or buy a new car?

Expressed another way, the question is this: Is it smarter, more practical, and more economical for me to keep and fix my old car than to buy another car, new or used?

This is always a tough one to answer. Generally, it’s going to be better to fix up an old car than buy a new car every five years or so.

However, the real answer depends on your particular circumstances. Here are some tips that will help you make a decision.

Your First Car – Making Your Decision

Most of us get our first car as teenagers. It’s the car we’ll always remember.

Let’s take a look at some of the important questions you’ll want to consider when deciding about what you’ll buy as your first car, how you’ll pay for it, and how to go about the purchase.

How much can you spend?

If cost is not important and you can choose practically any car you want, we’ll get to you later. However, most teens have restrictions on how much they can spend. It might be that parents are buying and have set a price limit, or that you have your own budget and limited income.