New Cars vs. Pre-Owned Cars

If it’s time to replace or upgrade your vehicle, you may be thinking about whether it makes more sense to buy a new car or a pre-owned car. There are pros and cons to both options, but here is the trade-off in a nutshell. With a new car, you get greater peace of mind, more flexibility to customize your options, and dealer-factory incentives (such as cash back or 0% financing) that are not available for pre-owned car purchases. With a pre-owned car, you can often enjoy substantial savings and still get many of the benefits of buying a new car. We’ll take a closer look here.

Depreciation and Gap Insurance

You may have heard it said that a new car loses thousands of dollars in value the minute you drive it off the lot. While it is true that a vehicle’s depreciation is sharpest during the first three years of its life, this has changed in recent years. Today’s new cars tend to retain their value better than new cars did in the past. The field of automotive engineering has improved, and mechanical issues do not develop as easily as they did in older cars. However, depreciation is still a significant factor. You’ll also need to purchase gap insurance for a new vehicle in case you are involved in an accident while the car is still new (this is often also necessary for pre-owned vehicles, but not always).

Monthly Payments

There are a number of variables that affect your total monthly payment for a car. The amount of money you have available for a down payment, the value of your trade-in (if you have one) and your credit score are obvious heavily-weighing factors, but these will come into play regardless of whether you buy new or used. If you purchase a new vehicle, dealer-to-factory incentives can significantly lower the amount needed for a down payment. You can also apply cash back to the principal of the loan, which will lower your payments a bit more. Finally, with new vehicles, you can typically get auto loans with longer payback periods (up to 72 months) whereas with a pre-owned car, you may only be able to get 48- or 60-month financing. The net result: new vehicles are often just as affordable as pre-owned vehicles, and sometimes the monthly payment even works out to be less.

Vehicle Condition & Price

One reason why some people prefer new vehicles over pre-owned vehicles: they may be concerned about the car’s history (or whether or not the prior owners took good care of the car). While this is a legitimate concern in many cases, buyers don’t have nearly as much risk as before. The stereotype of the used car salesman has become largely a thing of the past—partly because vehicle history is much more transparent than before. When dealerships take cars on trade-in, they are able to assess the market value of the car based on a more complete set of information. This transparency has led to a more level playing field. It’s difficult for dealers to make excessive markups on pre-owned cars—and it’s easier for you to see the full picture of what you’re buying before you buy it.

There’s no black and white answer as to whether it makes more sense to buy a new car or a pre-owned car, but you can find an excellent selection of both at Folger Subaru. Our sales consultants will help you to find the vehicle that meets your needs with no hassles or high-pressure sales tactics.

Stop in for a test drive today.





5701 E. Independence Blvd Charlotte, NC 28212
Sales: (888) 703-8351
Service:(866) 306-3293
Fax: (704) 535-8204

Why “Gap” Insurance Is Important

Gap insurance is ideal for new cars, leases and recent-model pre-owned cars. Some car buyers assume that “full coverage” on an insurance policy means an ironclad guarantee that if their car is totaled or stolen, it will be replaced at no cost (other than the policy deductible which is typically $500). Unfortunately, that’s not the case.

Cars are a type of asset that depreciates in value over time. Depreciation is especially sharp during the first few years of a car’s life. When you drive a new or late-model pre-owned car off the lot, the value of your car decreases more rapidly than the balance of your loan. In other words, your debt will likely exceed the value of the car for the first 1-2 years. This condition is referred to as being “upside down.” If you get into a bad accident and your insurance company declares your car a total loss, you will be responsible for paying the difference between the car’s book value and the balance of the loan—which can add up to a hefty amount of money.

Let’s look at a couple of scenarios. Suppose you bought a brand new car for $22,000. You were able to buy the car with $1,000 down and 4% financing with a 72-month loan period. Your payment is $345/month. Six months later, the car is totaled in an accident. Your insurance company pays you $18,300 (based on the current book value of the car) less your $500 deductible ($17,800). Meanwhile, you still owe $19,340 on the loan. The balance of $1,540 comes out of your pocket.

There are a number of factors that can influence the size of the gap between a vehicle’s book value and the amount owed at the time of a total loss. The higher the sticker price of the car, the greater the gap will be during the upside-down period. If you bought the car with zero money down, you will start with a hefty gap. If you financed the purchase with an extended loan period (as in the example above), the loan will amortize slowly—meaning that the “gap” will shrink slowly. Finally, if you were upside-down on your old car when you traded it in (adding the negative equity onto your new car loan), this will also exacerbate the gap in the event of a total loss.

If you are leasing your vehicle, gap coverage is even more critical. One of the primary benefits of leasing a car instead of buying is the fact that you get to drive a higher-end vehicle for a similar monthly payment. That means that the depreciation on the vehicle will add up to a higher dollar figure and a higher “gap” in the event of a total loss. For this reason, many leases require gap insurance and include the cost in the lease payment, but don’t assume that. Make sure to read your lease terms and understand your gap coverage.

Most dealers will explain gap coverage to you, but make sure to ask if your loan includes gap coverage. Unless you are paying at least 20% down on your vehicle, you will most likely need gap insurance.

If you’re in the market for a new vehicle, stop in this week and test-drive one of our Subarus!


5701 E. Independence Blvd Charlotte, NC 28212
Sales: (888) 703-8351
Service:(866) 306-3293
Fax: (704) 535-8204