Is it better to buy a new or second-hand car?
Many people often decide to buy a new or second-hand car based on their budget. It is one of the criteria to take into account, but it is not the only one. There is no single answer to the question of whether it is better to buy a new or second-hand car, but there are steps to follow to determine which of the two options best suits us.
- The frequency with which we change cars. If we do it every so often, a second-hand car may be a better option. On the other hand, if we want the car to last us, new can be better.
- The type of car. Some models are priced very low on the second-hand market, others very high. In this article you will learn to differentiate them.
- The specific demand for the car we are looking for. If you are looking for a “small, diesel car with few kilometers” you are looking for the same as everyone else, therefore you will pay much more.
- The flexibility that we have. Are we looking for a specific model or are we flexible?
- The budget we have now and our financing capacity
The golden rule: don’t buy what everyone is looking for
Although we see that the decision is complex and many factors influence, if we had to stay with a golden rule for buying second-hand it would be the following: look for a car that is not what everyone is looking for at the same time .
The most common case is usually that of utility or compact diesel, with a few years and few kilometers. It is what best adjusts to what people need, and that is why there is usually more demand than supply, which causes the price to be relatively very expensive.
In that case the question is, can you adapt to another car? A simple variant is to look for it in gasoline. Even assuming that you do a lot of kilometers and you think that a diesel would compensate you if you bought it new, it is possible that second-hand you will save a lot by buying a gasoline one.
Another option is to go to a different car, for example a bigger one. The bigger the less demand there is for that car, and therefore the more the price will drop. The extreme is in luxury cars, for example the Mercedes S-Class or the Audi A8, when they are eight years old or older. It is a car profile that almost no one looks for, therefore compared to its price, new ones are very cheap. In general, large cars and sports cars lose more value and are therefore better options to buy second hand.
And if you are clear about what you need and this is what everyone is looking for, at least check the price of the new car, as it may compensate you.
The danger of asymmetric information or lack of information
The second-hand market has a problem, and it is evaluating whether a car is “good” or “bad”. It is true that there are a number of factors to try to find out, something that we will discuss in another article, but two cars exactly the same on the outside and under those criteria may have been treated very differently.
As users it is very difficult to see the difference, but even if we have a trusted mechanic, he cannot know for sure how the car is. That is, if it is wrong you can tell us, but not the opposite: if it does not have “symptoms” it does not mean that it is not wrong.
The seller may have this information (knowing that he has treated his car badly or that it has caused him problems), but it is difficult for him to give it to us. This is called asymmetric information, or when the seller has more information than the buyer about the product. The problem is that, if my car is in good condition, I cannot make it more expensive than one that is in poor condition, because the buyer will not know which is the good one and therefore will not pay more for mine.
Our advice is that, when buying a second-hand car, let’s assume that we have a certain risk that the car has had a problem. Does this mean that we should not buy second hand cars? Of course not. It means that the price difference “as soon as it leaves the dealer” is due in part to this risk, a probability of having to pay for an expensive breakdown in the future.
This is partially mitigated by the guarantees if we buy it from a professional seller and not from a private individual, although in this case we are also paying an extra price for that guarantee, in addition to the seller’s margin.
In which cases it is usually better to buy a new car
- When it is a model that has just been released. As there are few second-hand units, these will be expensive and the difference does not make up.
- When we plan to keep the car for a long time. Being able to take care of our car from the beginning will make up for the difference over the years.
- When it is a specific model, or a type of car (eg small car, diesel and with few km) that everyone is looking for. If there is more demand than supply, the prices will be relatively expensive and it will be worth buying it new.
- When it is a specific model that has a good offer and will have a good resale when we want to sell it. For example, a car that has been released two years ago and now has a major promotion. If it has a lot of demand for second hand, we buy it new and do a few km with it, what we will lose by selling it in a few years will be little (always in relative terms)
Whether you are looking to buy a new car or a used one, you first need to sell your old car. To do that, you can contact Cars Wanted Newcastle.
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