If you recently decided to buy your first car or replace your existing one, you’ve probably asked yourself the question, do I buy new or used? In this article — the first in our Money Mailer series on vehicle ownership — we explain why a used car is almost always a better buy than a new car, and point out some important factors to consider when buying a car.
First, let’s not compare apples with oranges. A 10 year-old car is not the same as a one year-old car. A vehicle with 200,000km on the clock simply won’t be in the same condition as one straight off the showroom floor. But, a one year-old car – that’s still new, and 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, and, if you are buying a used car with 30,000km on the clock, these will probably already have been sorted out. Consider, then, what you’re getting for the premium paid for a brand new vehicle if reliability isn’t a factor: new car smell, a more shiny finish?
A new car depreciates massively as soon as it leaves the showroom floor, and there’s a big difference in price between a brand-new car and one that has only a few thousand kilometres on the clock. For example, a new car worth R200,000 could cost you R160,000 – a depreciation of 20% – just a year later.
That’s a reduction in value of R40,000 over twelve months, or R3,333 every month (on average). Of course, a car will continue to depreciate after that, but in increasingly smaller increments: maybe 14 percent in the second year, 10 percent in the third year, and 8 percent in the fourth. The point is that when you buy a new car, you take the largest hit in depreciation.
To encourage people to buy vehicles with lower emission ratings, the South African government charges a carbon tax on the purchase of new vehicles. This is calculated on a vehicle's CO2 output, so the bigger the engine, the more you pay – R75 for every g/km of CO2 above the threshold of 120 g/km.
For a small vehicle – like a Polo GP 1.2 TSI Comfortline with a CO2 emission of 117 g/km – there would be no tax at all, but for a gas guzzling workhorse like a Toyota Landcruiser 76 SW 4.5D 4x4 (303 g/km) you’d have to pay R13,725. These taxes apply only to new cars and not used cars.
The only real reason you could have for buying a new car is that it would allow you to spec your car just the way you want it. Some would say that the warranty is also a good reason, but this is usually not true. If you bought a year-old car with a five-year 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 reason 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 are later models, they’re more fuel efficient than older models. This doesn’t mean that you can’t get a good deal with an older vehicle. You can, but you have to be a little more careful in choosing your purchase.
To learn how to go about buying a used car, read the the next blog in this series, How to buy a used car. Alternativley, sign up for our Money Mailer for all kinds of money-related tips. In this free monthly newsletter, we serve up articles on topics ranging from saving to borrowing and everything inbetween. If you've ever wanted to know how to save for university, how to reduce your living expenses, or how to improve your credit score, the insights in these articles can leave you wiser, wealthier, and better equipped to make the most of your money.