Should You Buy A Brand New Or Secondhand Car?

Should You Buy A Brand New Or Secondhand Car?

An earlier survey found that for more than 80% of Filipinos, a car is an important tool in life. Those who live in more congested areas and experience the struggles that come with public transportation, in particular, will be more attracted to the idea of owning one, as a private car can help ease daily commutes. 

In addition, a car represents a lot of great things. The comfort that it brings, for instance, does not have to be selfish, as you can share it with family and friends. With one, road trips and vacations to farther places can be more enjoyable. And cars are associated with security and freedom; if you have one, who’s to stop you from going anywhere you want?

The numbers certainly reflect just how much Filipinos value cars, as a 2017 report indicates that cars make up about two-thirds of the 2.7 million vehicles that pass-through Metro Manila every day. Similarly, trends over the past few years have allowed for more Filipinos to own a car – such as the addition of millennials to the workforce, which enabled them to have access to resources that make car ownership possible.

Globally, the lure to get behind the wheels is also a well-funded venture. According to Two Cents by PBS, car companies spent around $14.2 billion in marketing in 2014 alone. And cars have been seen as integral to society, especially American society, since the 1950s.

So it makes a lot of sense for Filipinos to catch up with the car craze and want one for themselves. And if you are one such Filipino, the question of buying one ultimately breaks down into two main components: should you get a brand-new car, or should you get a secondhand car?  Let’s discuss.

Pros of buying a new car

Buying a new car accords you with certain advantages over secondhand cars. These are:

1. The freedom to choose

The market offers so many options that you can customize, according to what you want. Do you like leather seats, or do you want cloth upholstery? What size and price class would you prefer? Are you looking to install an upgraded audio system? 

Do you want to equip it with the best that current technologies can offer? It is all your call. You don’t have to fit within a pre-molded box, as many manufacturers and dealerships will allow you to call the shots.

2. More flexible finance rates

A brand new car also gets you better finance rates, especially if the model is a new addition to the market.  

Many car dealerships provide flexible schemes such as low-interest financing and cash rebates as incentives. And most importantly, brand new cars come with warranties.

3. More high-tech features

Finally, brand new cars usually come with the best of what technologies are designed to do. And they are not limited to convenience and entertainment, as many safety upgrades are rolled out in new releases to ensure better protection.

The downside of buying a brand new car

All these advantages do not excuse the fact that buying a brand new car also comes with disadvantages. Let’s discuss them one by one.

1. Depreciation

The first, and most significant, of these, is depreciation. Did you know that brand new cars usually depreciate by 63 percent of its original value after 5 years? And depreciation will not wait 5 years – your car can depreciate by 10% as soon as you drive it off the lot.

Depreciation also speeds up if you did not take care of your car. Let’s say, for example, that you will resell the car after one or two years. While its value will not go down that much because it hasn’t been used for long, compared to a 5-year old car, its value may still be lower than that of a 5-year old car if it has not been maintained well.

Finally, depreciation varies according to certain makes and models. According to Fox Business, the following car brands and models depreciate by this value after 5 years:

  • Jeep Wrangler: 31.23%
  • Ford F-150: 41.44%
  • Toyota Camry Sedan: 45.59%
  • Subaru Forester SUV: 47.16%
  • Lexus RX 350 SUV: 50.37%
  • Hyundai Santa Fe SUV: 52.27%
  • BMW X5 SUV: 56.21%

2. Insurance

Brand new cars also require full insurance coverage, as far as dealerships and finance institutions are concerned, which means, yes, more payments. 

Premiums differ according to the age of the vehicle, the age of the driver, and other factors. But the rule is that the newer the car is, the more expensive the premium will be, for both full coverage and liability.

3. Lower return on investment

Finally, a brand new car will not give you the return on investment that you may want. Unlike a home, which may appreciate in value as developments in its area or to the property itself happen over time, a brand new car loses a little of its value with every day of owning it. And even if you’re paying for it at a minimal interest rate, chances are you will have paid for it more than what you will get for it if you’re reselling, by the time you pay it off.

Pros of buying a secondhand car

Now, this brings us to this point: what about buying a secondhand car, then? What are the advantages that you can look forward to?

First off, you don’t have to contend with its depreciation, as its previous owner already did. In fact, the older the car is, the more its value has depreciated, which means that you can buy it at an even lower price. Let’s take, for instance, buying a Toyota Vios, which is one of the most popular cars in the Philippines. If a car depreciates by, say, 20% on its first year and 15% every succeeding, year, a Vios 1.5 G M/T at ₱981,000 will be available for purchase at the following approximate prices over the next five years.

Five-year depreciation timeline
  • 2019: ₱981,000
  • 2020: ₱784,800
  • 2021: ₱667,080
  • 2022: ₱567,018
  • 2024: ₱481,965

So essentially, if you buy a Toyota Vios 1.5 G M/T three years from now, you would have saved ₱499,035. That’s not bad!

In addition, buying a secondhand car will ensure:
  • Reduced carbon footprint, as much of the carbon dioxide that a vehicle produces, happens during the early stages of its lifecycle, such as manufacturing and initial shipment.
  • Lowered customization fees, as you don’t need to ask for expensive manufacturer add-ons.
  • No hidden fees, unlike brand new cars.

If you’re buying a secondhand car that is in high demand, there is a strong potential that you can re-sell it at a higher price than the one you paid for it. 

In the Philippines, there are many buy-and-sell enterprises that flourish off these resale values: they buy secondhand cars at set rates and sell them for profit. There are also certain brands that depreciate at a lower rate, by virtue of their established market reputation.

Cons of buying a secondhand car

The biggest drawback to buying a secondhand car is that it, of course, does not look brand-new. If you have a certain aesthetic standard that you want your car to meet, a secondhand one may require additional work so that it fits your preferences. 

Also, some used cars may have issues. This is why you must get a comprehensive history of its use when you buy it so that you can properly gauge its condition and prepare yourself for what it may need, down the line.

Finally, if you buy a secondhand car from a private individual instead of an authorized dealership, you may not have access to available warranties or service programs.

Tips for buying a car

All things considered, if you want to buy a car and you want to save as much money as you can now or in the years to come, there are three main key things that you may want to think about:

  • Consider getting a car that is at least 5 years old. This means that you’ll be able to buy it for up to 63% discount compared to a brand new car.
  • Save up to buy a car, in cash. Regardless of whether you’re buying a brand new or a secondhand car, it is best to buy it in cash. You’ll always save a good hundreds of thousands of pesos in doing so. Some dealerships will even offer discounts for it.
  • Save up as much as you can for the downpayment. If you can’t buy a car in cash, the next best thing to do is pay a big chunk of money for the downpayment.  This will equate to lower monthly repayment or shorter-term with lower interest rates.
    Did you know?
    Zero or low downpayment promos come with higher monthly repayment and overall bigger interest than regular car loans. It literally makes some hundred thousand peso difference.

Should you buy a brand new or secondhand car?

There is nothing wrong with buying a brand new car. Apart from the satisfaction that you get from driving a shiny new vehicle equipped with up-to-date technology, it’s a personal preference that no one can take away from you. However, if you’re cautious about your finances in the long term, car ownership will definitely have a significant impact – this is the when second-hand cars become great contenders over brand new ones.

Second-hand cars are right off the bat the more practical option – you’ll be spending less for the same convenience and comfort that a brand new car could give. But of course, buying a good quality secondhand car also comes with its own set of challenges. You will need patience and diligence to scrutinize a secondhand car’s history and actual condition under the hood before you could call it “value for the money.” Before you drive it home, do your homework. 

As what many financial experts would probably tell you, a car is a depreciating asset. From the time you drive it out of the dealership, it immediately loses its value by at least 10%!  Whether you’re buying a brand new or a second-hand car, having the right expectation of what it could mean to your finances should ultimately be the key driver to choosing between the two.

 

Sources 1, 2, 3, 4, 5, 6

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