Understanding the cost of new cars versus used cars

One of the first things you'll have to decide when you're buying a car is whether you're looking for a new or used car. They both have their pros and cons. Used cars can be more affordable but have more miles and often more maintenance costs. New cars are usually more expensive but come with the latest bells and whistles, like built-in navigation systems and automated or self-driving technology.

Trying to decide new car versus used car? Here are a few things to keep in mind.

Common costs for all car purchases

All cars come with some expenses and financial decisions. Whether you buy new or used, if you're considering financing, you'll still have to have good enough credit to get an auto loan. But your interest rate might be lower if you buy a new car. You'll also want to consider whether you'll make a down payment, which might not be required for your purchase. Remember, the more you put down, the less you'll have to borrow. To purchase the car, you'll have to pay taxes and fees and for the title at closing.

You'll have other common expenses that come with car ownership: filling the gas tank, car maintenance costs like oil changes, and general car repairs, though new cars might need fewer fixes. You'll also need to pay for car insurance, which can be less expensive for used cars.

Why buy a used car?

If you're trying to save money, a used car may be a good option, starting with the vehicle's price tag. But the savings can extend beyond the sticker price. Here are a few ways you could save:

The car value depreciation has been covered by the previous owner.

All cars depreciate over time. But used cars depreciate more slowly. Usually, once you get the keys the car already has seen its biggest depreciation. Slower depreciation means you'll have a better loan-to-value ratio — the total dollar value of your loan divided by the actual cash value of your car — if you are financing the car. A lower loan-to-value ratio often indicates to lenders that your loan is less of a risk, so they might be willing to offer better loan terms — saving you money over the life of the loan.

You might get more car for your money.

Thanks to depreciation, even luxury cars might be within your reach if you're buying used. If you bought a new car, you might not be able to consider certain makes or models or might only be able to afford a base trim package. But if you shop used, you'll likely be able to afford a wider variety of cars that are better equipped.

You'll likely have lower insurance costs, registration fees and taxes.

Your car insurance company determines your insurance rate based on several factors, but one of the most important is your car's value. The company will have to pay more for more valuable cars in the case of a wreck. Your car's age can also help you save on registration fees and taxes. Your state might cut its registration and taxes based on the car's age, weight or horsepower. Make sure to check the laws and regulations in your area when you're considering your car budget.

Of course, there are some negatives to buying a used car. Here are a few disadvantages to consider:

You might pay more for repairs.

Higher miles translate to more time on the road, which means more wear and tear on the vehicle. As cars age, they can require expensive maintenance and repairs. You might be buying all the problems the previous owner didn't want to deal with. You'll need to do some research and possibly pay for an inspection of the car before you purchase it.

You might not be covered under lemon laws.

No car is immune from technical problems or breakdowns, but some cars have so many problems caused by the manufacturing process that keeping them road-worthy becomes impossible. Most states have laws to protect buyers from deceptive warranties and sales practices on new cars. But only a few states have passed so-called lemon laws that cover used cars. These protections often are limited in coverage and time period, and they often only apply to used cars purchased at dealerships, not from private sellers.

You might not get the exact car you want.

When you're buying a used car, you're limited to what's available when you're ready to buy. You might not be able to find the exact make or model you're looking for, or you might not be able to find a car with the accessories and trim package you want. Unless you're willing to wait, pay more, or expand your search area, you'll probably have to compromise on things like mileage, color, or condition.

Why buy a new car?

Few things are better than that new car smell, except maybe getting a great deal or saving time. But it's important to know the true cost of your new car. Here are a few benefits of buying new:

It's easier to find the car you want.

If a dealership doesn't have the car you want on the lot with all the options you want, the dealer can order it from the factory or swap with another dealer who has what you're looking for in stock. Depending on the market conditions, you might not have to settle on whatever is available.

You might be able to get a deal.

Automakers frequently offer incentives to help move slow-selling cars, or vehicles that are about to be replaced with newer models. Cash back offers or low- or no-interest financing, for those approved, can help you save money. New cars often come with warranties or perks like roadside assistance that will also help you save. Be sure to read through the various deals or offers and choose the one that best meets your needs.

New cars can be more fuel-efficient and safer.

As technology has advanced, automakers have found new ways to improve a car's function. They're boosting fuel efficiency, replacing V8 and V6 engines with turbocharged four- and six-cylinder motors. Lighter materials also mean cars burn less fuel without compromising safety. Other safety improvements available now include automatic emergency brakes, lane-keeping assistance and better vehicle design to protect you and your passengers.

You know it's in good shape.

When you buy a new car, you can be confident it's in pretty good shape. It hasn't been out on the road getting dings and dents and shouldn't need immediate major engine repairs. The brakes and tires are brand new, and the interior is pristine. You don't have to check the vehicle history to ensure no previous owners were involved in accidents or failed to do basic maintenance.

But just like with used cars, there are a few negatives when buying a new car. Here are a few things to think about:

Your car may depreciate quickly.

Auto valuation experts like Kelley Blue Book estimate that new cars typically depreciate about 20% as soon as they're driven off the lot, and they can lose another 10% to 20% in value over their first year. After that first drop in value, most new cars depreciate by 15% to 25% every year until the five-year mark. At that point most cars will have lost a whopping 60% of their value. This is an expense you might not feel right away. For example, if you buy a car for $30,000 but sell it for $15,000 in three years, that car cost you $15,000 in depreciation. Not all cars depreciate at the same rate, so you'll want to do some research with sites like:

• Kelley Blue Book.^{See note1}
• Consumer Reports.^{See note1}
• National Automobile Dealers Association – Consumer Resources.^{See note1}

New cars are more expensive and you may need to borrow more.

Sure, you expect to pay more for a new car than a used one — you're paying for all those extras and to avoid wear and tear. Keep in mind, though, that by borrowing more, you're increasing your monthly budget.

Sales tax, registration and fees are more expensive.

In most states, you'll pay sales tax based on the entire price you pay, so as the sticker price goes up so does the tax. The same is true for your registration and other fees. New cars are assessed at a higher value, so you'll pay more. Not all areas are the same, so check your area's rules and regulations.

Whether you choose to buy a new or used car, it's important to research before you sign on the dotted line so you know what the car is worth. That can help you get the best car for your money.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.