Should you buy a new or used car? Here's how to decide

When you're shopping for a car, one of the first decisions you have to make is whether to buy a new or used vehicle. It requires you to weigh numerous trade-offs and can easily become overwhelming. But CNBC Select breaks down the major pros and cons of either option so you can make the choice that's right for you (and your wallet).

• Pros and cons of buying a used car
• Pros and cons of buying a new car
• Is it better to buy a new or used car?
• Bottom line

A used car might not have that magical new car smell — but it can save you money while retaining more of its value. Here's what to consider when thinking about buying a used car.

Pros

• Used cars are typically more affordable.

According to Experian's State of the Automotive Finance Market Report from Q3 2023, the average monthly loan payment on a new car was $726, compared to $533 on used cars. That's despite the loan rates being higher for used vehicles (11.35%) compared to those for new cars (7.03%).

If a monthly payment is a deciding factor for you, a used car might be the better choice. Plus, you can always shop around for a lower rate. For example, myAutoloan is an excellent place for rate shopping. The platform matches you with several prequalified loan offers so you can pick the best deal. It also works with borrowers even with imperfect credit.

• Car insurance on used cars is generally cheaper.

Another expense you can potentially save on with a used car is auto insurance. Generally, it's less expensive to insure a used vehicle than a new one, especially if you're getting comprehensive insurance. With car insurance rates on the rise, it's something to keep in mind — especially since auto insurance is an ongoing expense.

• A used car experiences less depreciation.

A vehicle is a depreciating asset, meaning it tends to lose value over time. According to Kelley Blue Book, a new car loses 20% of its value in the first year after purchase. Within the first five years, that number grows to 60%. This means you can (in theory) buy a car that's only one year old and pay just 80% of the original price.

Further, the depreciation rate slows after the vehicle's mileage hits the 100,000-mile mark. Vehicle depreciation is one of the most influential factors affecting a car's long-term value. If you finance a car, a high depreciation rate may cause it to lose a lot of value quickly. As a result, you might end up with an upside-down loan, meaning you'll owe more on it than the car is worth.

Cons

• Used cars may not have the latest tech.

If you love all the latest bells and whistles, an older car isn't likely to offer you much. If that's not something you're willing to compromise on, you might be better off buying a new car — or even leasing it.

• A used car might require higher maintenance costs.

Even if you're buying a used car in great condition, it will likely need more maintenance and repairs to stay that way. These expenses may become significant over time, outweighing the savings from the lower purchase price and monthly costs.

• You'll need to check the car's history before buying it.

There's no telling how the previous owner treated their car until you check its maintenance records. It's also a good idea to bring a mechanic to take a look at the vehicle before you sign the papers to purchase it. This adds an extra step to your car-buying process — and it's a risky step to skip.

There's no denying the appeal of a new car customized the way you want it. At the same time, it often comes with higher costs which can sting, especially considering how quickly new vehicles lose their original value.

Pros

• You can customize your car.

What color car do you want? Do you want a powerful sound system and self-parking features? When you're buying a new car, you can outfit it to your needs — or just pick the base model. It's up to you to decide, and that's one of the main benefits of purchasing a new vehicle.

• New cars have the latest tech and safety features.

New cars can be equipped with the most advanced technology, from driver-assistance systems to connected mobile apps and built-in vehicle tracking. The tech keeps evolving, and purchasing a new vehicle gives you access to the latest features.

• New cars are less likely to have mechanical problems early on.

With a new car, you likely won't need to worry about any hidden mechanical problems in the first few years. And should something happen, the vehicle's warranty can help you pay for repairs and maintenance, reducing or even removing many such expenses.

Cons

• New cars are more expensive.

A new car comes with plenty of perks — and a price tag to match. Experian data shows that the average loan amount for a used vehicle was $27,167 in Q3 2023, compared to $40,184 for a new car. And if you're buying a luxury car, you'll likely pay far more than the average price.

• A new car is likely to experience more depreciation.

As we've mentioned, new vehicles are prone to significant depreciation, especially in the first year. Considering that, you're running a higher risk of ending up underwater on your auto loan, meaning you'll owe more than the vehicle is worth.

• New vehicles often cost more to insure.

Finally, you can expect to pay more to insure a new car, which will add to your regular expenses. It might not be the deciding factor but you still want to budget for it. It's helpful to seek out affordable coverage by shopping around for insurance. We recommend Geico as the best overall choice for cheap auto insurance, thanks to its low average rates and high customer satisfaction ratings.

When it comes to the choice between buying a new or used car, there's no universal right option. What's best for you depends on your needs and preferences.

On the one hand, if affordability is a crucial aspect for you, a used vehicle might be a better choice. The majority of costs will be lower, starting with the purchase price and ending with insurance. This is especially true if the car is still under the manufacturer's warranty. If it's not, you can opt to buy an extended warranty. Consider this added cost, as well as registration fees, gas (or charging) and other potential expenses when determining whether a used vehicle makes sense for your budget.

On the other hand, a new car can offer more advanced technology and safety features. Besides, you'll be able to customize it, eliminating the need to search for a used car that fits your wants and needs. Note, however, that if you tend to change cars every couple of years to drive the latest model, leasing might also be a valid option for you.

Whatever you decide, make sure to comparison shop when choosing an auto lender. This will allow you to receive multiple offers and possibly secure a lower interest rate. CNBC Select recommends PenFed Auto Loans for low rates and flexible loan terms. Their car-buying service is powered by TrueCar, so you'll also receive benefits such as special loan discounts and cash-back incentives.

If you're buying a used vehicle and want access to a large vehicle inventory, CarMax can be a solid choice. Plus, CarMax doesn't have a minimum credit score requirement, which can be great news for those with a lower credit score.

Choosing between a new and used car can be a difficult decision. Carefully weigh the potential benefits and drawbacks of each option to see what makes more sense for you. And whichever option you decide on, make sure to negotiate — both on the price and the rate. Unless the dealer specifically prohibits it, you'll have an opportunity to score some long-term savings.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every car loan guide is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of auto loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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