Buy New or Used?
When looking to buy a car, is it more economical to purchase new, or used? We spoke with a local Toyota dealership, who gave us the following examples.*
Meet Amelia, a 20 year old student from Chester. Following a gap year, she is excited to be heading off to university in the autumn and her parents have decided that it would be nice, for Amelia to have her own transport. As this is going to be her first vehicle, Dad says, ‘let’s treat Amelia to a second hand car’. The family has a budget of £3,000 and they search online, for something suitable.
Amelia’s parents find a 2012 Vauxhall Corsa, with 59,000 miles on the clock, which they like the look of. The seller says that it is clean inside and out; a nice little run around, and would make an ideal first car. After a brief negotation, they purchase the car for £3,000.
To ensure that the car is in good working order, Amelia’s parents arrange for it to have two new front tyres, at a cost of £120. After a service (£179) MOT (£49) three year warranty (£500) and road tax (£30) their outlay, is £3,878. For peace of mind, they also arrange AA Roadside cover, for £39 per year.
During the first year, Amelia’s car runs perfectly and there are no additional costs. In the second year, it needs new discs and pads, as well as a new exhaust. After its annual service and MOT, it has cost Amelia’s parents an additional £619.
By year three, the treads on both rear tyres have worn and they need replacing. The car also needs a new clutch and the total cost for the year, after service and MOT, is £747.
Over a period of three years, Amelia’s Vauxhall Corsa has cost her parents £5,361. It is now valued at just £700, so when they come to sell the car, their total outlay has been £4,661.
But what if the family had purchased a brand new car? Let’s consider, that instead of buying a used car, the family head to their local Toyota dealership. They meet with a sales executive, Tom, who shows them a brand new Toyota AYGO x-play, for £10,328. With a £3,000 deposit, the monthly payments will be just £89.16, per month.
The car will need servicing twice within the first three years, costing £264. Amelia’s parents also pay £78 for AA Roadside cover over two years (the first 12 months of cover is free) and thanks to the AYGO’s fuel efficiency, tax on the car is £0!
After three years, the family return to see Tom and having made 35 monthly payments, the total cost has been £6,462.60. The final repayment on the car, would be £4207.50, but when the dealership value the car, it is still worth £6,000. This means that Amelia has
£1,792.50 equity and can choose to trade it in for a new car, if she wishes. Alternatively, she could finance the remaining amount and keep the AYGO.
If the family returned the car to the dealership, they would walk away with a cheque for £1,792.50. This means that their outlay has effectively been £4,670.10, which is extremely close to the used car example (£4,661).
Here, we compare the two options available, with an initial budget of £3,000.
There is a lot to say for choosing a new car, over a used vehicle. We have been quite conservative with our examples, when considering the potential costs of maintaining an older car. For example, an issue with the timing chains on the Corsa, could cost £550 to repair. The cost to replace the ECU (Engine Control Unit) if it fails, could be in the region of £1,500 and a blown head gasket could cost £2,000.*
If you choose to buy a used car for your son or daughter, when they head off to university this autumn, bear in mind that it is not necessarily the most economical way to purchase a vehicle. After three years, you might not be left with much to show for your investment.
*We have estimated the costs involved, when purchasing a second hand car and the examples used are fictitious. We have not included the costs of insuring a vehicle, as these will vary significantly, with a wide range of variables.