Should you buy a used car?

Today, buying "pre-owned" makes more sense then ever

2012 Volkswagen Passat front-right view
This three-year-old Passat is nearly identical to a new one -- but it costs thousands less. Photo © Aaron Gold

The used-car scene has changed: Gone are the days of the shark-skin-suit-clad salesmen offering anemic heaps owned by a little old lady who only drove it on Sundays. Today, not only are late-model used cars a safe buy, they make good financial sense -- although they also come with some pitfalls. This article will highlight the advantages of buying used over new so you can decide which makes most sense for your own situation.

The same car for less money

When you buy used, you miss out on the heaviest depreciation hit. A new entry-level Honda Accord will set you back around $25,000. Buy a similarly-equipped two-year-old Accord with 24,000 miles and you'll pay about $6,000 less. (And that's for a car that holds its value well. A Chevrolet Malibu costs about the same as an Accord; 2 years and 24,000 miles later it's $10,000 cheaper.)

More car for the same money

A new mid-level Toyota Corolla will set you back around $21,000. But what if you want something bigger? For the same amount of money, you could buy a two-year-old top-of-the-line Toyota Camry with a leather interior. Planning on growing your family? You'll find plenty of four-year-old HSUVs and minivans in the new Corolla's price range.

You can also move up in prestige. A new Toyota Camry XLE V6 with all the bells and whistles is a nice ride; at $35,000 it had better be.

But for the same price (or even a couple grand less), you could be stylin' in a two-year-old Lexus ES, Audi A6 or BMW 3-series.

Certified pre-owned (CPO): Used cars with new benefits

More and more manufacturers offer "certified pre-owned" programs. Cars sold as certified pre-owned (CPO) bridge the gap between new and used.

They are subject to a rigorous inspection and repair process, and usually are covered by a warranty from the manufacturer. CPO cars will usually cost more than non-CPO cars, but the added warranty and peace of mind makes them a good value.

Why not buy used?

Are there disadvantages to buying used? Definitely. New cars are covered by a comprehensive zero-deductable warranty; if your used car breaks, you will have to pay for repairs (or a deductible if you buy an extended warranty). Also, a used car will need wear items, such as tires and brakes, replaced sooner than a new car, items that are usually not covered under warranty. And most cars require rather expensive servicing around the 50,000 and 100,000 mile marks; a used car will be closer to those intervals. (See my tips for keeping your car running forever.) If you're looking at lowering your overall costs, rather than just your purchase costs, you may be better off with an inexpensive new car.

Financing is generally more expensive for used cars (though this may be offset by cheaper insurance rates), and if you prefer to lease, a used car probably isn't a viable option. By buying a used car, you may be missing out on some of the latest-and-greatest safety and technical gadgets.

And, of course, there's that new car smell. Let's face it: Having a new car is a great feeling.

In the end, all of these things have a price, often several thousand dollars. Is it worth it? That's up to you -- but if you're looking to stretch your car-buying dollar as far as possible, buying used is a sensible option.