Students often vacillate between choosing new cars and used cars. The budget is the biggest concern. Buying a new car costs a lot of money, and it loses up to 30% of its value within the first year. Secondhand cars depreciate more slowly, but they do not offer a warranty.

Used vs new cars: which saves more money?

First off, you need to identify why you need a car. As a student, you might need it to commute to the university. If your budget is restrained and you do not need a car for anything other than commuting from home to university or back home, a secondhand car will be the best bet for you.

These cars are available from car dealers as well as independent vendors. At the time of choosing these cars, make sure they are not too old. 5-year-old cars face performance issues. Since you need it only for commuting purposes, you do not have to invest in the stylish look. Just focus on the engine’s health, mileage and performance-related features.

There are a few factors that you will need to take into account while choosing between new vs used cars:

• Upfront costs

The upfront cost is the biggest factor that influences your choice. Undoubtedly, new cars will cost you more money than used cars. Whether or not you are financing it, the upfront cost for new cars is quite high.

However, if you are looking to get it financed, you will need to carefully examine your repayment potential. For instance, if you try to get a £8,000 loan with bad credit, the total cost will be more than the sticker price, courtesy of interest payments. However, the size of the down payment could reduce the total cost as it brings down the loan-to-value.

If you purchase a secondhand car, on the other hand, you will most likely find reliable models. You can save thousands of pounds.

When it comes to affordability, the odds are against new cars.

• Depreciation

Depreciation is an important factor which is often ignored at the time of buying a car. New cars lose 30% of their value by the end of their first year. However, used cars depreciate more slowly than new cars.

Do not forget that the depreciation loss is actually the cost of ownership. It is the difference between the sticker price when buying at the showroom and the salvage value. If your £25,000 car’s market value is only £10,000 after three years, the cost of driving the car will be £15,000.

Depreciation is important to consider, especially if you are getting your car financed. If your car’s value drops faster, you will end up with negative equity. It means if you sell your car or you receive proceeds from your insurance company, you will still have to pay off the debt from your own pocket.  

Used cars are a better choice than new cars because your previous owner would already have absorbed the shock of a steep decline in your car’s value.

• Insurance costs

Insurance premiums for new cars are higher than for used cars. This is because the total loss payout is higher for new cars because of expensive repairs. In case your car is stolen, the insurance company will have to pay a much higher payout due to a high market value.

However, used cars already lose their market value, and their repair bills are also not very high. Therefore, you can save a lot of money on insurance.

Used cars are cheaper to insure than new cars.

• Maintenance and repair

Do not expect to include maintenance and repair charges. Warranties cover new cars. They do not require an MOT for the first four years. Used cars, although, require annual MOTs. They also need more frequent repairs depending on how responsibly you drive.

Maintenance bills for old cars are deemed to be higher than those of new cars, but you can keep the cost low by responsible driving.

• Environmental impact

New cars are more fuel-efficient and cause lower emissions. Used cars may not be blessed with advanced technology. They generally cause high emissions.

Used cars take more of a toll on the environment than new cars, as they are not sustainable.

The final word

No doubt used cars save more money than new cars. Since you are a student, it makes more sense to purchase a used car. Car investment is not a once-in-a-lifetime investment. As your financial situation becomes stronger, you can decide to purchase a new car in the future.

FAQs

• Which one is better: car loans or car finance from dealers?

If you are looking to finance a car, you can consider either car loans or car finance deals. You will have to compare the cost to decide which one saves you money. Car finance with bad credit in the UK is generally more expensive than car finance deals with good credit.

• Are used cars more expensive to maintain?

Though used cars require more maintenance than new cars, it does not mean that they will always cost you a lot of money. Aim for lower mileage and on-time services to ensure that you do not end up footing high maintenance bills.

• What are the risks associated with buying a second-hand car?

Although buying a used car is a more beneficial than a new car, it is subject to some risks as well.

• Accident history
• Flood damage
• Tampering with odometer
• A lack of regular services

• Should you buy from a dealer or a private vendor?

Buying from a car dealer could cost you more, but it comes with consumer protections. Private sales are affordable, but they are riskier.

• Is there any cheapest way to finance a car?

No financing method is cheaper. If you want to save money, you will need to buy it outright, as you can save money on interest payments.