Purchasing a Vehicle: Used vs. New

Purchasing a Vehicle: Used vs. New

Right next to buying a home, buying a vehicle is one of the largest purchases you’ll make, and its impact on your finances and credit is significant. Below are a few things you should consider when trying to decide if you should buy a new or used car.

Personal Needs

When deciding whether you want a new or a used vehicle, you need to assess how you will use it. Will you need to drive it to a job everyday that’s over 30 miles away or do you typically take public transportation to work? How you plan to use your car will in part help to determine how much you should invest when purchasing it.


It’s generally accepted that used cars are significantly cheaper than new ones. However, that’s only true of upfront costs. When deciding between a new and a used vehicle, consider operating and maintenance costs. What is the gas mileage? How much will it cost to repair? Is it easy to get someone to fix your vehicle?  Once you add all of these operating and maintenance costs you will get to the true cost of buying the vehicle.  But generally speaking, it will cost more to maintain a used vehicle than a new one.

Interest Rates

It’s more expensive to finance a used vehicle than a new vehicle. Interest rates can differ significantly, especially if your credit is anything less than spotless. When deciding whether to buy a used or new vehicle, you need to seriously consider financing costs. Even if the cost of a used vehicle seems reasonable, the true cost is what you will pay once you’ve made your last auto loan payment.  Take a look at the blue book value of the used car. Is it worth the final price tag? If not, then you might want to consider paying cash or buying a new vehicle instead.

Credit Impact

In almost all cases, if you finance a new vehicle, your loan and payments will be reported to all credit bureaus. As long as you’re making timely payments as agreed, this can have a positive impact on your FICO score. On the other hand, in many cases your loan payments will not be reported to the credit bureaus if you finance a used vehicle. This means that you won’t get any credit score boost from purchasing your used vehicle. If you decide to finance a used vehicle, make sure that the lender has a policy of reporting payments to all three credit bureaus.

The next time you’re in the market to buy a vehicle, carefully think about how it will impact your finances and credit.