Buy a Used Car and Save Money

If your goal is saving money, buying a used car rather than a new one can save you big bucks in several ways.

"I am a big fan of buying used," says Philip Reed, Edmunds.com senior consumer advice editor. "I think it's an extremely important way for a family on a budget to save money."

Jack Nerad, Kelley Blue Book's executive market analyst, is another cheerleader of buying used. "Used cars are a great value," he says. "Cars today are really good and really last a long time. They have longer useful lives than in the '50s and '60s when I was growing up."

While paying a lower purchase price for the same car model used rather than new is the obvious reason to buy a used car, there are others as well.

Even so, Reed cautions that all used cars aren't created equal. A consumer must do his homework before deciding if a used car is in good or bad shape. With that caveat, here are five of the best reasons to buy a used car.

Minimizing Depreciation

Reed says new cars typically depreciate about 20 percent when they are driven off the lot. Most cars will lose another 10 percent in value during the first year. That's a 30-percent loss in value during the initial year of ownership. A $30,000 car loses roughly $9,000 in value during that period. You can avoid that hit by buying a one-year-old used car. He cautions that one-year-old used cars are hard to come by, but it's becoming easier to find two- and three-year-old used cars.

Additionally, with the "right" used car, it's possible for an owner to buy it, drive it and sell it with little loss in equity. According to Reed, depreciation flattens out, usually after a car's second year when the rate of depreciation dips before increasing again around year five.

Still, Nerad says buying something that is two years old and driving it until you can't drive it anymore is the most cost-effective way to own a car.

Reducing Insurance Costs

Nerad says a key factor in determining the cost of car insurance is the value of the car. Because a used car has less value than a newer version, the cost of insurance should be less. Reed says even more money can be saved because some elements of car insurance can be dropped.

"Collision and theft: Once a car is old enough, you can do away with those if you choose," Reed says.

Reducing Registration Fees

As with car insurance, the fee that states charge to register a car is often based on the car's transaction price, Reed says. And many states are increasing registration fees in an effort to generate more revenue. Buying used is an effective way to stunt those increases.

Getting More Bang for your Buck

Stretching your car-buying dollar is another benefit of buying a used car. You can buy more car by purchasing used rather than new. You may not be able to afford that new luxury car you've lusted for, but one that's two or three years old may fit your budget.

"We used to think that a 100,000-mile car was done," Reed says. "Now they are running to 200,000 miles. That's like a second life."

Nerad says because carmakers no longer redesign their models every year, buying used doesn't carry the same stigma it once did. "When a three-year-old BMW shows up in your driveway, your neighbor doesn't have to know you didn't buy a new car. It looks pretty much like a new one," Nerad says.

Keeping Your Peace of Mind

It used to be that buying a used car was a roll of the dice. "Buying someone else's problems" was how some have described buying a used car. Today's consumer can minimize the risk and save money while avoiding hidden problems.

Companies such as Carfax and AutoCheck produce vehicle history reports. Based on the car's vehicle identification number, or VIN, these reports provide an array of valuable information including verification of the mileage and whether the vehicle was ever declared a total loss by an insurance company.

Nerad suggests consumers truly worried about a used car's potential hidden problems can also buy a certified pre-owned car. Certified pre-owned programs vary from manufacturer to manufacturer, but in essence, certified pre-owned cars are vehicles that meet a manufacturer's established standards and carry some form of guarantee against defects similar to a new-car warranty.

"(Certified pre-owned cars) provide the amenities of a new-car purchase -- warranties and preferred interest rates -- that used car buyers haven't had available before," Nerad says

 

Copyright 2010, Bankrate Inc.