Buying a new vs. used car in this market

The prevailing wisdom in the past was that it’s always better to buy a good used car than a new car.  This was based on depreciation and initial cost.  However, we are living in different times right now.  As many of you have seen or heard, the average price of a used car has risen substantially in the past couple years.  One report on Edmunds.com showed that prices of 3 year old used cars are up significantly.  A Honda Civic was up 10% over last year and a Hyundai Sonata was up 20% over the previous year.  Bargains can be found, but they are tougher to find now.  In addition, several 1 year old used cars cost MORE than their new counterparts! 

Click here to see a full list (http://www.edmunds.com/car-news/new-vs-used-car-buying.html).

There are several reasons behind the rapid surge in used car prices.  The first reason is low used car inventory.  With the recession, people have been holding onto their cars for longer, especially the ones with good gas mileage.  Secondly, fewer people were leasing during the recession and the supply generated from off-lease cars decreased.  Finally, people didn’t have the money or financing for new cars and therefore had to hold onto their existing cars. 

So what should you as a car buyer do?  Here are several options to consider.

The first option is to buy that new car you’ve been dreaming of, especially if you have a trade-in that gets good gas mileage.  These cars are in high demand at nearly all dealerships and you can expect a good trade-in value.  Just don’t take the first offer they give you!  The new car will come with a full warranty and you’ll know how well it’s been taken care of because you’re the only one who has owned it.  Plus it will have that new car smell!

You can also trade-in your car for a newer used car.  The savings won’t be as much as in years past, but the difference in the higher price should be washed out with the higher trade-in value.

“But I don’t have a car to trade!”  If this is the case, you may have to wait until the prices normalize.  This could take 6 months or more, so it may not be the best option if you need to do something quickly.  However, deals will be available, but it will take extra time and effort to locate them.  You will also need to act quickly.  So come prepared with preapproval for financing.