Why a New Car May Be a Better Deal

May 5, 2009
Special Feature

With car dealers slashing prices and offering generous incentives, now may be the time to buy a new car instead of a used car to get a better bargain.

You’ve got some cash and your credit is good, so you’re in the market for some newer wheels. Conventional financial wisdom says buy used, not new. When you buy a used car, the previous owner has taken the big depreciation hit that a new car suffers the minute it’s driven off the dealer’s lot. But the current crisis climate has turned conventional wisdom on its ear, according to many consumer experts. With car dealers slashing prices and offering generous incentives, now may be the time to buy new to get a better bargain.

There are several factors at work here, but the overall effect is to lower the monthly payments on a new car down to where they’re equal to or in some cases even lower than on a one- or two-year-old used car. Buyers hunting for used car bargains have pushed prices up at the same time that dealers are offering deep discounts on new cars, along with four-figure cash-back bonuses and 0% financing. With new-car loans averaging between 7.3% and 7.5%, according to Bankrate.com, a 0% loan can save you serious cash. You’ll probably need a credit score of 720 or higher to get one, however.

One of the downsides of a no-interest car loan is that it’s likely to come with a short repayment term of three years or less, which will boost your monthly payments. Another drawback to consider when buying a new car is depreciation. If you plan to trade the car in within a couple of years, you’ll take a big depreciation hit. And if you buy a car from one of Detroit’s Big Three, say auto industry observers, you could face an even bigger drop in value if the car maker files for bankruptcy.