One of the biggest decisions when buying a car is whether to go new or used. Both options have their merits — and both can be financed. But which makes more financial sense?
Let's break down the numbers and considerations to help you decide.
The Case for Financing a New Car
Advantages
- Lower interest rates — new cars typically attract the best finance rates
- Full warranty — manufacturer coverage means fewer surprise repair bills
- Latest safety tech — newer cars have better safety ratings and features
- Better fuel efficiency — newer models are generally more economical
- Exactly what you want — choose the colour, options, and features you prefer
- No hidden history — you know exactly how it's been treated (by you)
Disadvantages
- Higher purchase price — new cars cost significantly more
- Rapid depreciation — loses 15-25% in the first year alone
- Higher insurance — comprehensive cover costs more on new vehicles
- More to borrow — higher price means bigger loan and more interest paid
The Case for Financing a Used Car
Advantages
- Lower purchase price — often significantly cheaper than new
- Depreciation already absorbed — someone else took the biggest hit
- Lower insurance — cheaper to insure than equivalent new model
- More car for your money — can afford a higher-spec vehicle
- Smaller loan — borrow less, pay less interest overall
Disadvantages
- Higher interest rates — used car rates are typically slightly higher
- Unknown history — previous owner's habits are a mystery
- Limited or no warranty — repairs come out of your pocket
- Older technology — may miss out on latest features
- Finance restrictions — some lenders won't finance older vehicles
Comparing the Numbers
Let's look at a real-world comparison:
| Factor | New Car ($45,000) | Used Car ($25,000) |
|---|---|---|
| Purchase Price | $45,000 | $25,000 |
| Interest Rate | 6.99% | 8.49% |
| Loan Term | 5 years | 5 years |
| Monthly Repayment | $893 | $511 |
| Total Interest Paid | $8,580 | $5,660 |
| Total Cost (loan only) | $53,580 | $30,660 |
| Value After 5 Years* | ~$22,500 | ~$12,500 |
| True Cost (price - resale) | $31,080 | $18,160 |
*Estimated, assuming typical depreciation
In this example, the used car costs $12,920 less over 5 years when you factor in depreciation.
Depreciation: The Hidden Cost
Depreciation is the silent killer of new car value:
- Year 1: 15-25% loss
- Year 2: Additional 10-15%
- Year 3: Additional 10-12%
- Years 4-5: Slower, around 5-8% per year
A $45,000 new car might be worth only $22,000-$25,000 after 5 years. That's $20,000+ gone — on top of what you paid in interest.
A 3-year-old used car has already absorbed most of that hit. You'll still lose value, but far less dramatically.
The Sweet Spot
Many experts suggest 2-3 year old used cars offer the best value. They've taken the biggest depreciation hit but still have modern features, reasonable warranty remaining, and plenty of life left.
When New Makes Sense
Buying new might be the right choice if:
- You want the latest safety features (important for families)
- You're buying a model that holds value well (LandCruiser, HiLux, etc.)
- You plan to keep it for 10+ years
- You want the peace of mind of full warranty
- You have specific requirements not available used
- You can afford it without stretching your budget
When Used Makes Sense
Buying used might be the right choice if:
- You want to minimise total cost
- You're buying a car that depreciates quickly
- You want more car for your budget
- You're happy with slightly older technology
- You plan to upgrade in a few years anyway
- It's your first car and you're still learning
Finance Considerations
New Car Finance
- Best rates available
- Longest terms offered
- Easy approval process
- All lenders happy to finance
Used Car Finance
- Rates slightly higher (often 0.5-2% more)
- Age restrictions apply (typically under 12-15 years at loan end)
- May need to verify value
- Private sales may have fewer lender options
THE VERDICT
For most buyers, a quality used car (2-4 years old) offers the best balance of value, reliability, and cost. You avoid the worst depreciation while still getting a modern, safe vehicle with reasonable finance rates. However, if you're buying a vehicle known for holding value and plan to keep it long-term, new can make sense too.
The Bottom Line
There's no universal right answer — it depends on your priorities, budget, and how you value peace of mind vs pure cost savings. Run the numbers for your specific situation, and don't forget to factor in insurance, running costs, and likely resale value.
Need help deciding? Get in touch — we can show you finance options for both new and used, so you can compare with real numbers.
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