New vs used cars: which adds up for you?

Tips

There’s a lot to consider when it comes to choosing whether you want a new or used car – image, gadgets, safety, fuel efficiency – the list goes on. But today, we’re going to focus on the numbers and look at the choice from a purely financial perspective.

Damien Bury, Associate, Asset Finance at Macquarie Leasing says, “It’s important to look at the bigger picture. The financial impact stretches beyond the initial purchase price to the running costs and the residual value when it comes time to sell or trade in.”

Purchase price

New car: You generally pay more for a new car. Only you can decide whether it’s worth paying more in order to be able to choose exactly what you want – the colour, the interior fittings, the mod cons, all the things we’re trying not be distracted by here.

If your new car is over $65,000, you pay 33% Luxury Car Tax, although for some this is a small price for the luxury of owning a brand new car made to your specifications. If you choose to go green with a diesel, hybrid or electric car, you may receive both financial and environmental benefit with the Luxury car tax applying to “green” vehicles over $75,000.

Used cars: Purchasing a used car may leave a smaller hole in your bank account initially but it may be harder to find exactly what you want. It is possible to retro fit some of the mod cons to a used car, but more often than not, it becomes less important once people find out the price.

“If you’re buying through a dealer who’s offering add ons, read the fine print carefully so you can really weigh up whether it is genuinely adding value,” Bury says.

Warranty and servicing

New cars: Most new cars come with a factory warranty and some offering capped price servicing. This can make budgeting for your servicing costs much easier. It also removes a lot of uncertainty and provides peace of mind that if something does go wrong; it’s not going to cause a disastrous financial fallout.

Used cars: While some dealers offer a warranty on their used cars, it’s usually basic cover.

“Either way, when you take your car in for a service, you don’t know whether it is going to cost $300 or $3000. That can make budgeting difficult,” Bury says.

Depreciation

New cars: Everyone knows new cars generally lose value as soon as they’re driven out of the dealership, but how much? Both luxury and mid-priced cars retain about 50% of their original value after 5 years.

“Do your research on the lifecycle of the model you are looking at. Most manufacturers release a new model every five to six years. When that happens, the previous model may drop 20% of its value, almost immediately,” says Bury.

Used cars: Used cars obviously still depreciate but you’re generally buying it after the big drop in value. This creates opportunities in the used car market. A one or two year old car that still has its manufacturer’s warranty, hasn’t lost its appeal, but may have lost some of its original price.

Finance

Before you look into used or new, there’s still one important factor to consider – will you buy or lease the car. Explore the advantages and disadvantages of buying versus leasing to see which option suits your needs.

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