Used vs. New

Buy a new car or a used one? It's a decision that's nearly as old as the automobile itself, with far more motorists falling into the latter category these days. According to the Bureau of Labor Statistics, while 13,195,000 new vehicles were sold or leased in 2008, 36,530,000 used cars and light trucks changed hands.

For those who have only a modest amount of money to spend and/or other mitigating factors (like poor credit), there may be no decision to make - an inexpensive used car will be the only way to go. Those enjoying more favorable economic circumstances can find themselves facing a more difficult decision, as monthly payments to finance a new car and one that's only two or three years old might not be all that substantial, as we'll detail below.

A new car, of course is just that - it's brand new, and that alone carries an immeasurable degree of cachet for some people. What's more, a new model may offer features that were either not offered or not as widely available three or more years ago.

New-car buyers typically have a full range of choices in regards to colors and equipment from which to choose. Locating a particular color combination or feature set among locally available used models, which is limited to whatever happens to be on the market at that time, can be considerably more difficult.

The retail price of a new car is set by the manufacturer, which makes it reasonably easy to compare costs among different makes and models. The price of a used car is set exclusively by the marketplace and is ultimately based on a wide range of variables, including a vehicle's popularity, its condition, mileage and so on.

New vehicles come with full factory warranties and can also carry value added programs like roadside protection and free scheduled maintenance plans. Some used cars come with warranties, but these may be limited to "factory certified" later-model vehicles and/or may be for considerably shorter terms.

But it's affordability issues that typically drive a motorist's decision whether to buy a used car instead of a new one. Let's see how those shake out.

For starters, new cars carry substantially higher price tags than comparable used ones

and tend to take a larger hit over the first few years of ownership in terms of depreciation. Depending on the make and model, a new car can lose as much as half its resale value within just three years.

On the other hand, financing rates are lower and loan terms tend to be longer with new cars than used ones. New-car loans usually run as long as 60 or even 72 months from major lenders, while used-vehicle financing may be capped at 36 to 48 months, and limited only to recent-model cars. Longer-term loans and those for older used models can be found through some lenders and dealerships, but they typically carry much-higher interest rates.

Slower-selling new cars often come with generous customer-cash incentives. Combined with or in lieu of automaker-sponsored low-rate financing, can occasionally make them more affordable for some buyers - at least on a per-month basis - than recent-model used cars.

For example, this September Chrysler was offering zero percent financing for up to 72 months and as much as $2,500 regional and customer loyalty bonus cash to qualifying buyers on a 2009 Chrysler 300 Limited sedan that retails for $32,100. According to Kelley Blue Book, a comparable used 2007 model in excellent condition with 30,000 miles on the odometer retails for $18,540. While this sounds like it might yield a considerably lower car payment, as always the devil is in the details.

Putting aside dealer discounts, taxes and registration fees for the purposes of our example, if a buyer puts $2,000 down on the used model and finances the remainder with a 48-month loan at Bank Rate Monitor's quoted national average of 7.94 percent, the monthly payment would be $403.32. By comparison, qualifying for the cash rebates and taking the zero percent financing for the maximum 72 months on a new model (also with $2,000 down) would result in a $383.22 monthly outlay.

Be aware, however, that the new-car buyer will ultimately shell out a lot more money over the loan term than one that picks the used model - $19,359 versus $27,600 - though this will be for two additional years' use.

While this isn't necessarily the norm, it illustrates the need to work the numbers and examine a vehicular transaction from every angle to get the best deal, whether new or used, that sufficiently meets a driver's needs and caters to his or her emotions.