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Car prices on the rise: Weighing the pros and cons of new versus used vehicles

Posted on Monday, December 17, 2012 at 5:08:55 PM

The average price of new cars increased significantly during October. Countless Americans struggle to find their financial footing in the wake of the recession, and this could result in additional used car sales in the near future, as consumers look for more affordable options.

There are a number of key differences between purchasing a new and used vehicle, especially when it comes to its potential condition. Home Loan Investment Bank's Daniel Murphy exclaims.

"First and foremost: IT IS A USED VEHICLE," says Murphy. "Why is this capitalized? Because along with a large initial savings in price tag comes the flip side of that. This can include any or all of the following: general wear and tear, accumulated mileage, superficial scratches and dings or structural damage, transmission and powertrain issues, muffler, brakes, battery and steering concerns, worn tires - this list can go on. At minimum, an extended warranty should be considered to help defray costs of repair and replacement. "Potential buyers need to do their homework, including review of a Car Fax and an inspection by their mechanic. This does NOT guarantee any of that above will not present itself in the near future, but it is intended as a general 'green light' for initial purchase. There will be additional costs associated with a used car purchase for general maintenance and replacement of worn parts to keep your ride purring like a kitten. If you do not research, and are not committed to repair and maintenance costs, be prepared for a rocky and possibly unreliable ride. My recommendation is to purchase the newest used model year of the vehicle you can afford. Why? Less miles, wear and tear at a reasonable price."

However, the condition of the vehicle isn't the only concern. In addition, consumers should known the notable differences between new and used car financing before they decide which options best suits their situation.

"Generally new car financing offers lower rates," Murphy continues. "This is a direct result of large companies such as Toyota (Toyota Financial) and Ford (Ford Motor Credit) running continuous 'special financing' offers including 'zero interest' and very low rates ranging from 0 percent to 3.9 percent financing depending on marketing strategies. Zero financing or a large dollar amount 'cash back' is also popular. These rates/offers are designed to bring customers in the door. Usually, repayment terms are kept to a minimum therefore payments are usually higher than conventional automobile financing options (bank or credit union). This is a great deal for shoppers looking for a new vehicle and having the budget for a larger payment."

"A better choice for finance may actually be to take the 'cash back' and research the lowest rate they can get at their own bank or credit union, then do the math. There are usually less maintenance and repairs associated with a new vehicle for that very reason, its new. Keep in mind nothing is for free. Zero and low interest rates are designed to get people in the door buying are larger ticket item. All you have to do is look around when you are at the dealership. They usually have very nice car lots with shiny new cars that are well presented with an equally nice facility for inside viewing and negotiating as well as their own service facility. All of this takes money to run. So if the profit is not in the financing you can bet its elsewhere such as a higher price tag to begin with,  additional higher priced 'back end products' including warranties, GAP, life and disability policies, and scheduled maintenance required on vehicle to validate manufacture warranty."

"As stated earlier, bottom line: nothing is for free. My recommendation is to purchase a new car if you want a new car and can afford the price and are looking for a 'no hassle' ride. I also recommend to research your financing options to make sure you optimize your total pricing."

Consumers considering the purchase of a vehicle should step back and take a realistic look at their financial situation and determine which option is best for them.ADNFCR-16001244-ID-800927964-ADNFCR