Why Opting for a Pre-Owned Vehicle Can Be a Smarter Choice for Budget-Minded Shoppers

Posted Monday, Sep 11, 2023

Did you know that used car sales have increased twice as much as new vehicles in the US? With the current economic situation and rising inflation, more and more buyers are becoming budget-conscious with their purchases.

Since a used car dealership's inventory usually features a variety of vehicles to fit different types of budgets, more budget-conscious buyers have been turning to them for vehicle purchases. This article sheds light on the benefits of buying a used car for budget-conscious individuals.

Why Pre-Owned Cars Can Be a Smarter Choice for Budget-Minded Shoppers?

Below are a few reasons why buying a used vehicle can be a better option for budget-conscious individuals:

1.   Depreciation Benefit

Low depreciation is among the top reasons why purchasing a used car is a great option for budget-conscious individuals. When you purchase a new car, the vehicle will likely lose up to 20% of its value once you drive it off the dealership. Moreover, the vehicle will continue to rapidly depreciate in the first few years of purchase and lose around 15% of its value each year for the first five years.

To put this into perspective, let's take the example of Mark, who purchased a new vehicle for $60,000. The vehicle lost about 20% after purchase, meaning its value plummeted to $48,000 immediately after he drove it off the dealership. The next year, the vehicle lost 15% ($7,200) of its value, reaching $40,800. Therefore, after the initial year of purchasing the vehicle, Mark lost approximately $19,200. In contrast, if he had chosen to buy a used car, someone else would have already absorbed this initial loss, allowing him to get more value for his money.

For budget-conscious buyers, depreciation loss can feel like hard-earned money being thrown out the window. However, you step into a financial sweet spot when you purchase a used vehicle. By purchasing a used vehicle, you don't have to worry about it losing a large chunk of its value, allowing you to enjoy the benefits of a well-maintained, reliable car without suffering significant financial loss.

2.   Lower Insurance Premiums

When buying a new car, you can expect to pay high insurance premiums for the first few years after purchase. Since new cars are more expensive and insurance premiums are usually calculated based on the initial value of a vehicle, the higher your vehicle's initial cost will be, the higher the insurance premium you will have to pay.

This is where used cars stand out for budget-conscious individuals. Since a used car's market value is significantly lower than a new car's, its insurance premiums are also much lower than that of new cars. This allows budget-conscious buyers to save a substantial amount of money in the long run that would have otherwise been lost on high monthly insurance premiums.

Buying a used car means you will have to spend less money upfront and continue to save year on year. These potential annual savings on insurance premiums can be substantial for budget-conscious individuals. The money you save can help you reach your financial goals quicker, whether saving up for a house or retirement.

3.   Minimal Registration Expenses

You must pay a registration fee when you purchase a vehicle, which is usually calculated based on the vehicle's age and initial purchase value. Therefore, the registration fee for newer vehicles can be exorbitant for budget-conscious buyers. In contrast, since a used car has already experienced its initial depreciation, it usually comes with a much lower registration fee.

Although the individual savings on registration fees may appear minimal to some individuals, if you add them up, they can contribute significantly to a budget-conscious approach by reducing the cost of ownership. This financial relief that comes with purchasing used cars can empower budget-conscious buyers to allocate their budget more efficiently and enjoy a low cost of ownership.

4.   Reduced Sales Tax

Another major benefit of buying a used car is its reduced sales tax implications. The sales tax you must pay on vehicle purchases can vary depending on the purchase price and the specific laws of each region. For example, Maryland Baltimore's sales tax rate for new vehicles is 6%. In contrast, the sales tax for California residents on new vehicle purchases is 7.25%.

Therefore, if you were to buy a new car in Baltimore for $30,000, your sales tax burden would amount to $1800. In contrast, if you buy a used vehicle valued at $20,000, your sales tax responsibility would drop to $1200. Since used vehicles come at a much lower cost, the sales tax burden accompanied by them will also be lower. Furthermore, some states offer more attractive incentives for individuals buying used vehicles. For example, used car buyers can enjoy lower tax rates or tax exemptions.

5.   Established Resale Value

As discussed above, new cars come with unpredictable and rapid depreciation rates, negatively impacting their resale value. In contrast, they tend to maintain a stable resale value since used cars usually don't feature significant depreciation losses.

Moreover, certain models of used cars are known for their exceptional reliability. These vehicles hold their value well. This can offer budget-conscious buyers peace of mind that their chosen vehicle will retain its worth over time. Therefore, whether you plan to keep the car for a few years or sell it after a few months, you can rest assured of the stability of its resale value.

Bottom Line

Buying a used car is an excellent choice for budget-conscious buyers who wish to enjoy well-maintained vehicles without the financial pitfalls of rapid depreciation, high insurance costs, and registration fees. For individuals on a tight budget and wishing to get value for their money, the used car market offers many options to meet their budgetary restrictions.

If you wish to purchase a high-quality and well-maintained used car, we recommend visiting the Auto Center of Baltimore to browse a wide range of budget-friendly vehicles. Get in touch with the used car dealership today.