New or Used? How to Decide If You Should Buy a New or Pre-Owned Luxury Car
When you want a luxury ride, you have a few choices.
First, you could buy or lease. But let’s be real. Although there are some scenarios where leasing makes sense, if you ever want to own that car, you’ll want to buy.
Now, comes the most difficult decision: Should you buy a new or used luxury car?
In truth, it’s a very personal decision. No one can tell you that buying new is better than buying used without knowing your personal desires and financial situation.
But you can still end up with regrets – unless you consider all the variables.
Buying new can help you get your hands on all the latest technology and driving improvements of the current model year. But maybe you don’t have the budget for a new luxury car. Or perhaps you’re simply worried about losing money through depreciation.
And if you’re looking for the most affordable luxury cars, you’re probably going to look for models that are at least one year old.
It’s up to you to evaluate all options and make the decision that works for your budget and lifestyle. And there’s a lot to consider.
In this post, we’re going to cover all the things to consider before you decide to buy a new or used vehicle.
Chapter 1: Overview: New Luxury Cars vs. Used Luxury Cars
Chapter 2: How to Evaluate the Price of New vs. Used Luxury Cars
Chapter 3: Why New Luxury Cars Have Better Financing Deals
Chapter 4: Insurance Premiums on New and Used Cars May Surprise You
Chapter 5: How to Evaluate Repair and Maintenance Costs
Chapter 6: Here’s Why Used Cars are More Valuable Than Ever
Chapter 7: Top 3 Advantages of Buying a New Car
Chapter 8: How to Get the Best Deal on Your Luxury Car Purchase
Overview: New Luxury Cars vs. Used Luxury Cars
First, let’s recognize that this is a decision that’s likely to remain with you for a few years. If you’re like most people, it’s probably about six years.
And it’s also the most expensive purchase you’ll make in your lifetime apart from buying real estate.
It’s natural to want to ruminate on it for a while. In fact, it’s advisable.
For most people, the decision comes down to cost. But it’s important to remember that there’s more to this equation than comparing sticker prices. And that’s why it makes sense for some people to buy a new car instead of a used one.
Once you weigh all the costs involved, you may find that you’re not saving enough on the used car to make up for what that car might be lacking. Or you might find that the reverse is true.
It largely depends on your perspective, but in order to figure out what that is, you’ve got to crunch the numbers on a new vs. used car purchase.
How to evaluate the price of new vs. used luxury cars
You’re not going to be surprised to learn that a new car is more expensive than a used car. That’s about the most obvious statement a person can make.
But exactly how much more are you paying?
Well, in a 2012 Consumer Reports analysis, analysts compared new cars with two-and four-year-old equivalents and found that the four-year-old version cost anywhere between $5,000 and $9,000 less than a new car (assuming a 60-month loan).
But there’s something you should know…
The benefits of depreciation decline with the age of a car, so if you plan on owning your car beyond the typical six years, the benefits of buying used may not be as significant.
Did you know that a new car depreciates the instant you drive it off the lot? Most of us have heard this from one resource or another, but it’s important to note here that this is more than a myth or scare tactic. It is reality.
And although depreciation seems terribly unfair and stacked against the idea of buying a new car, it’s always as big of a deterrent as you’d think.
Here are the facts:
- A new car can depreciate by as much as 20% within the first year
- Depreciation declines with the car’s age, so in the next four years, you can expect to lose 10% annually to depreciation
- Not all cars depreciate at the same rate
Luxury cars often depreciate at different rates
If you’re trying to decide between a used and new luxury car, you should know that luxury cars don’t always depreciate at the same rate as other cars. Because the best luxury cars are typically so well-built, they hold their value much better than cheaper cars.
Still, you should consider that depreciation within the first year will be substantial. Find out what it is by using a depreciation calculator that factors make and model.
And then, decide whether the depreciation is something you can live with.
There are many things to consider within this one decision, and we’ll cover them all in this post. But for now, let’s tackle the concept of straight depreciation.
Depreciation is always there, and it always impacts your investment, but its impact diminishes with every year you own your car.
Here’s an example:
You buy a 2019 Porsche 911 for $170,000.
You buy a 2017 Porsche 911 for $108,000, saving $62,000.
It seems like a cut-and-dry case of substantial savings with the used car, but that’s because the depreciation is exceptionally high in those first two years. Over time, your vehicle will depreciate by shorter and shorter percentages. And the longer you own your car, the less that $62,000 will mean.
It’s all about perspective.
If you plan to own that Porsche 911 for a mere 24 months, $62,000 is huge. It equates to over $2,500 per month. And if that’s the case, you may get a better deal on a lease.
But if you plan to own that car for ten years, the additional $62,000 of depreciation equates to $516 each month. Now, that’s still higher than some people are comfortable with, but again, it’s all about perspective.
How important is new car ownership to you? Some people take great comfort in knowing they’ve been the only owner of their vehicle, and that’s especially true for a high-end luxury vehicle.
Also, the Consumer Reports analysis we’ve mentioned above was very much focused on purchase price. There was no information on the cost of owning each of these cars over the same period.
And cost of ownership is always higher on a used car. We’ll cover this topic in greater detail when we get to the “Reliability” section.
Could the cost to own a car that’s two years older negate its depreciation? It’s certainly possible. We’ll explore that topic with an example soon. For now, let’s look at a few more factors that play into the cost of car ownership.
Why new luxury cars have better financing deals
Here’s a little-known fact about the cost of new cars vs. used cars: You’ll almost always get a better rate on financing for a new car. But does that make up for depreciation?
According to data from ValuePenguin, the current average interest rate for a 36-month loan on a new car is 3.71%. A comparable 36-month loan on a used car is 4.11%.
And because it’s less than a percentage point, you may not think of it as a big deal.
But let’s look at that Porsche 911 example again.
You buy a 2019 Porsche 911 for $170,000 at a 3.71% interest rate.
You buy a 2017 Porsche 911 for $108,000 at a 4.11% interest rate.
Over the life of the new car loan, you’ll pay $9,898.48 in interest, making the total purchase price $179,898.48.
Over the life of the used car loan, you’ll pay $6,979.68 in interest, making the total purchase price $114,979.68.
So, after all payments are made (assuming no additional payments), you’ll pay $2,918.80 more in interest for the new car than for the used car.
But there is one caveat that could make financing a new car more appealing…
Because new cars are more reliable, lenders are willing to extend longer terms. These terms usually extend up to 60 months but can extend as far as 72 months. With extended terms come higher interest rates and a greater overall vehicle cost, but you would enjoy lower monthly payments.
Insurance premiums on new and used cars may surprise you
The car you choose matters a great deal when it comes to insurance premiums. So you might think that getting an older car would save you here.
But it’s a bit of a toss-up.
First, let’s address the difference between luxury cars and standard vehicles. Because luxury cars tend to have more expensive parts, a luxury car is typically more expensive to insure than a standard vehicle.
If you’re trading in a standard or economy car for a luxury car, be sure to check the premiums on a new insurance policy. Whether you buy a new or used vehicle, this will help you make an informed decision.
But when it comes to premiums on new or used luxury cars, the pendulum could swing in either direction. In some cases, the new car may cost more to insure. And in other cases, it may be the used car.
There are a few factors that attribute to your new or used car insurance premium.
- Safety – You might automatically expect the used car to cost less to insure because older cars are typically less mechanically complicated. And while this is sound logic, technological advances can significantly lower premiums on a new car – if the advances warrant a big change. For example, you’re comparing a vehicle that has antilock brakes, advanced or additional airbags or better traction control, you might get better rates. Safety plays a significant role in determining your insurance premiums, regardless of age, because better safety equates to smaller payouts in case of an accident.
- Auto theft – Many people assume that new cars are hot targets for car thieves. But that’s usually not the case. The latest cars also come with the latest anti-theft devices. And it always takes a while for thieves to catch up and learn how to work around it. Actually, in contrast, if you choose a luxury used car with security features that have been around for many years, it’s a lot easier to steal. Thieves know this, and that’s why these cars are so commonly stolen. But here’s the good news when it comes to luxury cars and insurance premiums: Data from the National Insurance Crime Bureau tells us that there aren’t any luxury cars in the top 10 models stolen in 2016.
- Cost of repairs – We’ve already touched on this one, but luxury cars (new or used) are much more likely to be made with expensive and/or imported parts. This means the cost to repair the vehicle will be greater than with another vehicle. Naturally, claims would be more costly for the insurance company to cover. And whenever the insurance company anticipates an increase, you can expect to pay a higher premium.
We all can try to guess whether any particular new or used car would be expensive to insure, but there are too many factors to consider. Whenever you’re thinking about buying any vehicle, it’s a good idea to call your insurance agent for a quote. It’s free and should only take 10 to 15 minutes.
How to evaluate repair and maintenance costs
Hands down, new cars are more reliable than used cars. This is even the case when you’re comparing a 2-year-old car to a new car. This is because a used car is more susceptible to issues with each year.
Car maintenance is a major factor in the cost to own a new versus a used car. A new car doesn’t need any routine maintenance at all for several thousand miles. Even within the first few years, there’s not a ton of maintenance you’ll need to perform on most cars, especially if you keep the mileage low. And if something unexpected comes up with a new car, it’s likely to be covered under the car’s warranty. Check on the warranty before buying a new or used car, but typically, new cars come with a warranty that covers three to five years.
The costs tend to jump up when you need things like brakes, tires, and the battery. So, if you’re looking at a car that’s three years old or older, or one that has 50,000 miles or more, ask about if/when these things were replaced.
So how do these costs add up in the grand scheme of things?
Let’s go back to our Porsche 911 example.
You buy a 2019 Porsche 911 for $170,000.
You buy a 2017 Porsche 911 for $108,000.
The cost to maintain and repair the 2019 Porsche 911 Carrera Coupe within the first year is $165. In the second year, that cost jumps to $956 for a total cost of $1,121.
The cost to maintain and repair the 2017 Porsche 911 Carrera Coupe within the first year is $1,255. In the second year, that cost lowers to $363 for a total of $1,618.
So, what happens when you own each car for five years?
Over the span of 5 years, it would cost an estimated $12,856 to repair and maintain the 2019 model versus $18,674 for the 2017 model.
There’s a difference of $5,818 over five years, making the new car the clear winner in maintenance and repair costs.
Assuming you’re planning to own the vehicle for five years, you could expect that the used car will cost an average of $1,163.60 per year more than the used car to maintain.
With this new information, let’s update our running tally.
We’ve learned that…
The 2019 911 model will lose about $62,000 in depreciation over two years.
And the total cost to finance the full value of that vehicle is about $2,918.80 above the cost to finance the used vehicle.
And now that we’ve seen the maintenance and repair costs, we can estimate that…
The 2017 911 will cost an average of $5,818 more over five years than the 2019 model to maintain and repair.
Let’s crunch those numbers:
($5,818) maintenance and repairs
$59,100.80 5-year cost to own 2019 model above the 2017 model
This means that the 2019 model of the same car in this example would cost $59,100.80 above the cost to own the 2017 model over five years.
5-year cost to own 2019 model: $192,754.48 ($170,000 + $9,898.48 interest + $12,856 repair and maintenance)
5-year cost to own 2017 model: $133,653.68 ($108,000 + $6,979.68 interest + $18,674 repair and maintenance)
In this example with the factors used, the 2019 model would cost 30% more to own over five years than the 2017 model.
Now, with all that said, there are a few things to keep in mind.
- For simplification purposes, this example assumes full financing (zero down payment), which is rare
- This example does not include the cost to insure, which are always variable based on the vehicle
- The disparity between the cost of buying a new car versus a used car diminishes over time, so if you were to own this same car for ten years, the variance would be much smaller
- These are all estimates, and real-life experiences could be vastly different (for example, your new or used car could have an expensive malfunction)
- There are reasons why someone may want a new car over a used car that have little or nothing to do with the financial data
Here’s why used cars are more valuable than ever
Since used cars are the clear winner financially, let’s take a moment to explore that path.
If you do decide that a used car is right for your situation, try not to feel like you’re missing out. First of all, every used car was new at one time or another. Also, used cars of today are much more advanced than in previous decades, so the difference between a new model and its 2-year-old counterpart aren’t so glaringly obvious.
And here’s something else to consider…
In the past, people would shun the idea of buying a used car because they felt like they’d be buying someone else’s headaches. And to an extent, that may have been true in the past.
Today, cars are built for performance. You’ll notice that cars of today typically don’t need oil changes and maintenance as frequently as the new cars of decades past.
So as long as you’re buying a car that’s “reasonably new” (i.e., built within the past three to five years), you should expect it to be reliable.
The old saying that things aren’t built like they used to be is true in this case.
But when it comes to cars, they are built better than ever before. Today you can drive the best used luxury cars further on tires and brake pads than ever before.
Certified pre-owned cars
If you do decide to go the used car route, a certified used car is often the best bet.
When you buy a car, especially a luxury car, from a complete stranger, you’re carrying a lot of risk. You don’t know how that car has been maintained. And even if that person has kept records, you have no way of knowing whether they’re legit.
If you do purchase a car from a stranger (or even someone you know personally), it’s a good idea to have that car checked by an auto mechanic.
This can be a bit of a hassle, and oftentimes, the person selling would rather take the path of least resistance. Think about what you might do in their shoes. You’d probably sell to the person with cash in hand, right?
That’s why so many people choose to buy a certified pre-owned car instead.
The certified pre-owned program offers a compromise between the benefits of buying used and the reliability of a new car.
You’re still buying a used car with mileage, but you can rest assured that the car has been thoroughly vetted for condition and reliability.
Most auto manufacturers offer some form of certified pre-owned program. And you’ll almost always find them at luxury car dealerships.
Certified pre-owned vehicles are usually one to three years old with relatively low mileage. In most cases, these cars have never had major damage and have passed a series of strict mechanical and cosmetic inspections.
And now for the best part…
Certified pre-owned cars come with a warranty.
Because these cars have been so thoroughly tested, dealers will extend a warranty that exceeds the original manufacturer’s warranty.
So you may buy a certified pre-owned car that’s still under the manufacturer’s warranty – and you’d get an additional warranty that extends further than the original timeframe.
And it gets better…
Depending on where and when you buy, you may find financing deals on certified pre-owned cars that are as good or better than new car financing.
Top 3 advantages of buying a new car
There are actually quite a few advantages of buying a new car over a used car. And it’s up to each of us to decide whether these advantages outweigh the cost. For many people, they do. And for those who don’t appreciate the appeal of a new car, used cars offer a perfect alternative.
Thankfully, there’s a large market for both new and used cars, so we all get to make that choice.
Here are some of the advantages of buying a new car over a used car:
- Choices – When you buy a new car, the sky is the limit. You can choose the exterior color, interior color, technology package, wheel size, and more. You can even choose colors and options that aren’t available in the stock models. In this way, you can completely customize your car to your liking. Remember, whether you buy new or used, this is a major purchase, and you should be able to get a car you love. And you simply don’t have those choices with a used car.
- Availability and convenience – If you do want a stock vehicle, you can pop into the car dealership in the morning and drive out with your vehicle a few hours later. New cars are readily available. There’s no need to comb through classifieds or hope the local used car dealership has what you want.
- Cutting edge technology – You see all the car advertisements. You know that autonomous cars are coming. You know that most vehicles today have some element of autonomy, and that’s something you’re not going to find in an older car. Whatever drives you, you know that used cars aren’t going to feature the latest technology.
How to get the best deal on your luxury car purchase
No one wants to walk away from a deal feeling like they’ve been fleeced.
And to be honest, the car dealership doesn’t want you to feel this way either.
When you buy a car, in most cases, you’re entering into a lasting relationship with your establishment of choice.
This will likely be the place you take your car for maintenance and repairs, and if all goes well, it’ll be where you go when it’s time to upgrade your vehicle.
It’s imperative for this relationship to be a win-win.
Still, it’s always important to do your part to get the best deal. After all, car salespeople are motivated to make money (as we all are). And you’re motivated to save money.
How to get the best deal on a luxury used car
Whenever you buy a used car, be prepared to do a little more research than you would with a new car. You’ll have to research all the same things about the car make and model as you would with a new car, but you’ll also have to research the actual history of the vehicle you’re purchasing.
You’ll want to know whether this vehicle has been in a car accident and whether it has had multiple owners. If you buy a certified pre-owned car, you’ll have some assurance of these things. But if you’re buying a typical used car, you can check a CarFax or AutoCheck report. These sites find a car’s history based on its vehicle identification number (VIN). You can ask the buyer for this information, or you can find it on a metal plate inside the windshield. You can sometimes see the VIN in vehicle pictures online.
The CarFax service isn’t free, but it’ll tell you about any major issues your car may have. And if you’re buying from a reputable dealership, they’ll likely provide a copy of the CarFax report before you make your purchase.
If you end up with a lemon, it doesn’t matter how much you’ve paid. It was a bad deal.
Here are a few more tips for finding the best deal on a used car:
- Shop around – You may not have as many choices with a used car as you do with a new one, but today, you have more choices than ever. If you’re looking for a certified pre-owned vehicle, look to the local car dealerships and stick with a dealer that specializes in the luxury car brands of choice. For example, if you want a certified pre-owned Porsche, visit your local Porsche dealership.
- Research the car value – Regardless of where you go to buy your used car, there’s one way to know whether you’re paying too much. Check the car’s value with a service like Kelley Blue Book, Edmunds or NADA. On Edmunds, you can also find the value people are paying in your area, which is a valuable tool for negotiating the best price.
- Check the car’s title – You won’t need to do this if you’re buying a luxury car from a dealership, but if you’re buying from a private seller, you’ll want to run a title search on the vehicle. We like to believe that everyone is honest, but there are some people out there selling cars that don’t actually belong to them. It’s best to protect yourself. Right before you’re ready to purchase, order your title history report from the National Motor Vehicle Title Information System. This website is run by the U.S. Department of Justice and offers various options for checking a car title.
- Get an auto mechanic’s opinion – Before you sign on the dotted line, you really want to know what you’re buying. Again, you can get that assurance with a certified pre-owned car. But if you’re buying any other type of used vehicle, you’ll want to have a mechanic review the car thoroughly. This is especially important when you’re making the type of investment you’ll make with a luxury vehicle. The added step and expense is worthwhile to avoid a potentially expensive mistake. If you don’t have a trusted mechanic who can do this for you, you can use a service like LemonSquad. The service for a luxury car will cost about $199, but the peace of mind you’ll get is priceless.
How to get the best deal on a luxury new car
Because you don’t have to worry about the vehicle’s history, it’s quite a bit simpler to buy a new car than it is to buy a used one. And that’s another benefit to buying new. You really don’t have to wonder about what you’re getting.
All you have to do is walk yourself into the dealership and tell the salesperson what you want.
But if that’s all you do, you’re not necessarily going to get the best deal.
To get the best deal, you’ve got to consider a range of factors – and be ready to negotiate.
And since most people finance new cars, this adds another layer of complexity to the negotiation.
Here are a few tips for negotiating the best price on a new car.
- Pay cash whenever possible. Next to depreciation, interest payments are your greatest opportunity for savings when you make an automotive purchase. In the example we used above, you would pay $9,898.48 over 36 months in interest on a $170,000 loan. That’s almost $10k in three years. Naturally, the investment isn’t quite as much when you’re financing less, but you also have to consider your credit history. The example we looked at earlier was based on a great credit score. If you have less than perfect credit, expect to pay a larger percentage in interest. Bottom line: If you can afford to pay in cash, do so. If not, plan to make as large a down payment as you can. This will save you the most money in the long run. And if you can cut interest rates as low as possible, any other savings you can negotiate is like icing on the cake.
- Get quotes from other lenders – Because dealers are highly incentivized to sell, you will often find the best deal from dealer financing. But this isn’t always the case. That’s why it’s always a good idea to research your options before getting a dealer quote. This way, you’ll know whether you’re truly getting the best deal on financing. This step is especially crucial when you have less-than-stellar credit. The dealership is well-versed in poor credit, but you may need to dig deeper to find the absolute best deal for your situation. In cases like these, a credit union might provide a better rate than the dealership can. Then, if the dealership cannot match the rate, you can take financing out of the equation to get the best possible price on the car.
- Research real car prices – Car pricing can be confusing. There are various sets of prices you’ll encounter when searching from a new car, including MSRP (Manufacturer’s Suggested Retail Price), Invoice and Sticker Price. So how can a consumer truly know if they’re getting the best deal? With a site like Edmunds, you can actually research what people in your area have paid for the exact same car. This way, you’ll know how your price stacks up to what everyone else is paying. Your car’s price should fall within the range of what other people are paying. Just be sure that you’re looking at comparable packages as you search, or this information won’t be valuable to you. And if you don’t use Edmunds, you may want to settle on a price that’s about 2% above invoice pricing.
- Don’t talk about financing – Some salespeople may try to coax you into discussions about financing along with the price of your vehicle. And while researching financing deals ahead of time may negate this tactic, it’s always a good idea to stand your ground on keeping these conversations separate. Ultimately, you’ll want to avoid talking about anything except for the car price. This is the only way to know whether you’ve gotten the best deal.
- Discuss the big picture – All of your considerable research on car value goes out the window when you start talking in terms of monthly payments. All that matters in this negotiation is the total price of the car itself. Once you get that nailed down, you can talk about things like options, financing, and monthly payments. Here’s the flaw with considering monthly payments instead of overall value: Shorter loan terms almost always equal greater monthly payments, but they also have the best rates. This means you’ll end up paying substantially more on the deal with lower monthly payments. But this rule doesn’t just apply to financing. A salesperson may try to sway the conversation of what you’ll pay for an upgraded package towards monthly payments. But it’s in your best interest to look at total value instead. This is the only way you’ll know whether anything is worth its cost.
- Wait to discuss any trade-ins – If you’re trading in a vehicle, don’t discuss its value until after you’ve settled on an acceptable price for your vehicle. The person you’re negotiating with may try to persuade you that you’re getting so much more for your trade-in that it equates to a good deal on your car purchase. But this is a quick way to shift the power back to the salesperson. If you can’t compare apples-to-apples on the value of the car you’re buying, how will you know if you’re getting the best deal? If you want to keep the upper hand in this negotiation, wait until after you negotiate to discuss trade-in value.
- Consider add-ons in advance – Before you even get to the dealership, research the available add-ons and upgrades to decide which you may find worthwhile. If you’re on the fence about one of them, consider whether it would be a sure thing at a lower price. You want to walk into this negotiation already knowing what you will and will not spend. If the salesperson offers something you haven’t considered, they’ll have an easier time convincing you that it’s something you want or need. This is why it’s important to explore all your options before you get to the negotiation stage.
After reading through this guide, a few things should be clear.
- First, a used car is almost always going to be the best decision from a purely financial standpoint.
- But if you plan to own this car for the next ten years or more, the financial difference between buying new and buying used is usually minimal.
- And there are some advantages to buying a new car that money simply can’t buy – and these things may be worth more to you than the additional dollars you’d spend.
Ultimately, this is a very personal choice that no one can make for you.
But if you rush into the decision without considering all factors, you could make the wrong choice.
Once you decide on a make and model, crunch the numbers to find out whether it makes more sense for you to buy new or used. You can use the example in this post to help guide you. Just be sure to consider insurance premium costs as well.
Are you in the market for a new or used luxury vehicle? Which is at the top of your list?