When you’re shopping for a new car, you have to start by choosing what kind of car you want to shop for. By kind of car, I don’t mean the make and model.
You first need to decide whether it makes more sense for you to purchase a new or a used car. Even within that decision, there are more specific choices to be made.
For example, do you want a new car as in brand new and right off the assembly line? Or, is “new to you” new enough, meaning a used car, or better yet a certified pre-owned car.
Before you elect one over the other, there are some important things to consider.
Why Buy a Used Vehicle?
Sometimes it might seem like buying a new car offers the most variety when it comes to manufacturer, model, style, color, trim levels, anything and everything you can imagine.
But think about it…
As soon as those cars have been purchased and driven off the lot, they officially become used vehicles.
This means that the used car dealer inventories will be just as extensive as anything featured on the lot brand new.
Plus, the fact that a new car immediately starts to depreciate as soon as it leaves the showroom is an important factor to consider when deciding if a new car is right for you.
Let’s look at the numbers…
The Cost of Owning a New Car
First of all, the sticker price of a new car will naturally be higher because, after all, the car has shiny news bells and whistles, and smells amazing.
But all of that glitz and glitter comes at a premium.
A recent report by Cars.com determined that the minimum average price gap between a new and used car is approximately $20,000.
Now, to be the first driver of this vehicle you will pay top dollar, even if you make a significant down payment.
The majority of financial institutions require a down payment of at least 10 percent of the car’s overall cost in order to secure a loan.
If you can put down more than this amount, your monthly loan payments will be a little bit cheaper.
Of course, not every consumer is in the financial position to do this right away.
In any case, what you need to keep in mind is that once you turn the key to that new car and start up that sparkling new engine, your car has already begun to depreciate in value.
Pretty fast, right?
Well, that immediate depreciation maintains its momentum and you can expect your new car to depreciate in value at an average rate of 30 percent during the first two years of ownership.
Only two years!
Even more shocking?
Depending on the make and model, some new cars actually depreciate by as much as 40 percent in their first year on the road.
Just in case these numbers aren’t sobering enough, don’t forget that new cars come with new car sales taxes that can reach upwards of a few thousand dollars.
Don’t forget, the cost of new cars generally increases due to hidden costs like shipping, destination, and dealer preparation fees.
Unfortunately, what makes these fees all the more maddening is that there is nothing the consumer can visibly see or experience, nothing really to show for after shelling out this extra money, other than the new car itself, which you’re already paying for, based on sticker price.
Also, the cost of registering a new car is typically far more expensive than registering a used car.
In general, registration fees tend to be highest in the first three years after a car is manufactured.
Although the cost generally levels off by the fifth year, you’ll be stuck paying high registration costs for a few years, in addition to your monthly loan payment.
Time to revisit the used inventory…
Used Vehicle Options
Okay, so you’ve decided you want to avoid high payments and skirt the rapid depreciation reality associated with a new car purchase.
Good thinking!
So, to return to the used vehicle overview, consider this: all of those once-new cars are now used, which means you will have the same variety to choose from as if you were shopping for a new car.
In fact, the variety of used cars trumps new cars, because you’re not limited to a single model year when shopping for your ideal vehicle.
Even better?
Most used car dealerships offer what are called certified pre-owned vehicles, and this is where you should focus your attention, your shopping, and your wallet.
What is a Certified Pre-Owned Vehicle?
Beginning in the 1990s, luxury brands like Lexus and Mercedes-Benz began offering certified pre-owned vehicles from their elite lines.
A certified pre-owned vehicle simply means a used car that has undergone and passed serious expert inspection, both mechanical and cosmetic, that is available for purchase with both manufacturer and dealer-offered warranties.
Between the inspection and warranties, certified pre-owned cars remove some of the risk usually inherent in purchasing a used car.
In order to be certified as a pre-owned vehicle, the car must not exceed certain age and mileage requirements.
Most pre-owned cars must fall between 60,000-80,000 miles, or be no greater than 5-7 years old in order to be certified by a manufacturer-backed dealer.
If the car’s mileage and age falls within that range, the dealer will then take it through a rigorous inspection, checking all parts, mechanical and cosmetic.
Provided it passes this inspection, the car can then be certified as a pre-owned vehicle, and although it is still a used car, in many cases, CPOs are considered “like-new.”
This might explain why J.D. Power and Associates recently reported that certified pre-owned vehicle sales have increased by 46 percent since 2000.
After all, you can’t put a price on peace of mind.
But, if you could, a certified pre-owned deal is a great place to start.
Certified Pre-Owned vs. New Car Warranties
When you purchase a new car, you also purchase peace of mind through the extended factory warranty, which covers the cost of car maintenance and repairs over a certain length of time.
Used cars do not come with warranties of any kind, meaning the buyer assumes sole responsibility for all maintenance and repairs.
But a certified pre-owned vehicle extends the factory warranty, offering protection very similar to the protection provided by a new car purchase.
What kind of protection?
Well, Autotrader established the best certified pre-owned warranties on the market according to three criteria: the length of coverage, the ability to be transferred, and the deductible for repairs.
The best warranties offer coverage up to 100,000 miles, can be transferred to other owners down the road, and have little – or better yet – no deductible for repairs.
What are the Best Certified Pre-Owned Vehicle Offers?
Not surprisingly, since the CPO program began with luxury vehicles, Autotrader’s top ten list for best CPO offers includes a few high-end brands, but also features deals from more affordable manufacturers:
- Porsche
- Lexus
- Volvo
- Hyundai
- Kia
- Volkswagen
- Jaguar
- Land Rover
- Mini
- Mitsubishi
By way of example, the top rated program from Porsche earned its place because, like most manufacturers, Porsche offers six-year or 100,000 miles of bumper-to-bumper coverage for those vehicles still covered by factory warranty.
Warranty already expired?
No problem!
Porsche will provide an additional two years or 50,000 miles worth of coverage to their certified pre-owned vehicles, not to mention a host of other impressive program perks.
Currently, Porsche is the only automotive manufacturer to offer such generous coverage.
But, the other brands on that list also offer competitive pre-owned packages, not to mention a few other popular automakers, like Toyota, which offers up to seven years or 100,000 miles warranty on its certified pre-owned vehicles.
In addition to added protection, certified pre-owned vehicles usually offer additional benefits, which can include anything from loaner vehicles, roadside assistance, oil changes, rental car reimbursement, and even fun perks like XM radio.
The Verdict
No matter the brand or program, a certified used vehicle offers so much more in the way of assurance and protection than traditional used cars.
And while that peace of mind and coverage makes them more expensive than regular used cars, certified pre-owned vehicles provide affordability unmatched by new car inventories.
Now for the hard part…tracking down your dream car in a certified pre-owned model.
I’ll leave that up to you.
