Buying new vs used

BEST BUYS: VEHICLES BETWEEN ONE AND TWO YEARS OLD

If you buy a new car, you take the largest hit in depreciation.

Aused car is almost always a better buy than a new car. Here are some important factors to consider when buying a car.

Reliability:

A 10-year-old car is not the same as a one year-old car. A vehicle with 200 000km on the clock won’t be in the same condition as one straight off the showroom floor. But, a one-year-old car could be more reliable than one straight out of the dealership.

Any problems with a new car are usually experienced in the first few months; if you’re buying a used car with 30 000km on the clock, these will probably already have been sorted out.

Consider what you’re getting for the premium paid for a new vehicle if reliability isn’t a factor.

Depreciation

A new car depreciates massively as soon as it leaves the showroom floor and there’s a big difference in price between a new car and one with only a few thousand kilometres on the clock. For example, a new car worth R200 000 could cost you R160 000 – a 20% depreciation – just a year later.

That’s a R40 000 reduction in value over 12 months, or R3 333 every month (on average). A car will continue to depreciate after, but in increasingly smaller increments: maybe 14% in the second year, 10% in the third year, and 8% in the fourth.

Additional costs

To encourage people to buy vehicles with lower emission ratings, government charges a carbon tax on the purchase of new vehicles. This is calculated on a vehicle’s CO2 output: the bigger the engine, the more you pay – R75 for every g/km of CO2 above the 120 g/km threshold.

For a small vehicle – like a Polo GP 1.2 TSI Comfortline with a CO2 emission of 117 g/km – there’d be no tax, but for a gas-guzzling workhorse like a Toyota Landcruiser 76 SW 4.5D 4x4 (303 g/ km) you’d pay R13 725. These taxes apply only to new cars.

The only real reason you could have for buying a new car is that it would allow you to spec your car the way you want it. Some say the warranty is also a good reason, but this is usually not true. If you bought a year-old car with a fiveyear warranty, the vehicle would still be covered for four years when you bought it and by this point, the vehicle will have already seen its greatest drop in value.

It’s for these reasons that we believe that cars between one and two years old are the best buys. They’re typically still under warranty, they represent good value for money and, because they’re later models, they’re more fuel efficient than older models. You can still get a good deal with an older vehicle, but you have to be a more careful in choosing your purchase.

Shirley Smith is COO at Old Mutual Finance

This was first published on Old Mutual Finance’s blog