31 December 2019 Concept Car
Should you buy a new car or a used car? We doubt that there can ever be a fully satisfying answer to this question. We do believe that opting for a second hand vehicle decidedly has its benefits. But we also realise that for some, these will never outweigh the advantages of a new model: The smell, look and feeling of a model that’s just rolled off the production line. Having access to the latest safety technologies can also sway the vote in favour of new.
Clearly, buying a car is an emotional process. And as long as we have different response to certain things, the question between new and used can never be decided.
Maybe it doesn’t have to. For there is a third option at your disposal, which doesn’t nearly get the attention it should: Buying an almost new car. Although this is still a niche phenomenon, it is quickly winning over plenty of adepts. And as we’ll explain in this article, it is not hard to understand, why.
Should the real question be: Used or almost new? Let’s find out.
The first part of that question is easier to answer than the second. A car starts being ‘used’ the moment depreciation sets in. This would typically be the moment you drive it off the lot.
With regards to when ‘almost new’ ends: 2-3 years is a sensible horizon. Cars this young still look and feel new, but have obviously racked up a few miles.
In the absence of an official definition, this is what we’ll be looking at in this feature.
This makes sense for financial reasons, too. Depreciation is steepest in the first three years after buying a car. A car is at its most profitable once you’ve paid it off in full. For most people, this won’t happen until the 6- or 7-year mark.
The need to sell
Still, in some cases it may be necessary or beneficial to sell a car even after a very short time:
So, in some cases, there is no great mystery to an almost new car. It simply got sold early by its previous owner.
Apart from these cases, there are three more possible scenarios. Let’s take a closer look at them.
Two of these stick out in particular: leasing and PCPs.
With the former, you simply pay a monthly usage fee. Once the lease has elapsed, you return the car to the dealer to get a new contract and a new car. Leasing, therefore, is a bit like renting long-term.
With PCPs, you also pay a monthly amount rather than buying the car outright. This time, however, you aren’t just renting the car. You’re actually paying off a loan on it. After the PCP term has ended, you can then pay off the outstanding debt on the car in a single (‘balloon’) payment. Alternatively, you can move on to a new contract with a new vehicle.
Most drivers tend not to make the balloon payment. And so, both leasing and PCPs contribute to almost new cars flooding the used car market.
They essentially swap out their entire fleet every two to three years.
Some of them will offer these models for sale. The deals can be very sweet indeed. As has been reported, you can sometimes rent these cars for up to three days to see if you enjoy them or to take them to a mechanic for a vehicle inspection. If you’re happy with the outcome of the test phase, you can then purchase the car at what will most likely be a 30-40% discount.
From dealers as part of their leasing- or renting plans or because someone decided to sell their car very early on.
Or at car rental companies selling off their discharged models.
This still leaves you with an important question: Why do it? Why not rather buy a completely new car and reap all the excitement associated with that? Or, why not just opt for used and save even more money over a new model?
We’ve singled out four benefits that are unique to almost new cars. As you’ll see, this option is not quite as out there as you might have thought.
On the web, you’ll find plenty of articles claiming that a car instantly sheds 10% of its value the instant you leave the dealership. This is a pretty spectacular claim and it may just be accurate. Then again, we honestly have no clue how anyone would know this. After all, it seems highly unlikely that many people would actually reconsider their purchase the very moment they hit the street.
One thing’s for sure: After 2-3 years, most cars will have lost up to 40% of their value. To give you a few examples:
These numbers are obviously not entirely factual. Not all cars depreciate at the same pace. But they do make it clear that an almost new car shaves a lot off the original purchase price of a factory new model.
At CCC, we firmly believe that used is better than new in almost every single case. Why? Because you’re buying the cat in the bag when going for a new model. With a used car, some of the potential issues and faults have come to light. This makes it much easier to decide whether or not a car is actually a good proposition or not.
Of course, these issues are less pronounced when buying a time-tested model. Each generation of the Ford Focus so far has run for about seven years, for example. That’s a lot of time for the manufacturer to sort out potential kinks.
But even then, a used car is a much more honest deal. If there are any issues with any of the usage-dependent parts, you should be able to detect these much easier than with a new car. That’s a significant benefit over an entirely new competitor.
Warranties rarely extend beyond three years, although some manufacturers have started making very long warranty periods a selling point.
Almost new cars are somewhere in between these poles. They will typically have at least one more year of warranty, sometimes more than that. Since you should be able to spot any potential problems when checking the car or taking it for a test drive, this offers you a degree of safety that a used car simply can not match.
Almost new cars offer a pretty good compromise. They’re not completely new any more. But they do tend to still look pretty much like the original and may often even have a remainder of the new smell on them.
If you’re a purist, nothing will ever beat the original. If you can live with a compromise, then almost new cars are a great alternative.
Which means that you first need to decide whether to buy just an almost new car or a full fledged new car.
The key question here is how much emphasis you place on the warranty. If you can do without it, then an almost new car is a great option to shave a lot of money off the initial price. If you are rather insecure about potential repairs, then a new model will be a better choice for you.
In our opinion, almost new beats new. Most cars are designed to last up to 15 years or more. So even at 3 years, you can get 80% of the potential lifespan for only 58% of the costs. That definitely sounds like a great proposition to us.
Now, this is a far harder decision to make. An almost new car is definitely closer to a used car than a new one. And so, the benefits tend to overlap or blur. Quite often, your preference will come down to fine nuances rather than major differences.
Should you buy a three year old, ‘amost new’ car or a four year old ‘used’ one?
Does it even make sense to compare a dirt cheap ten year old model with a two year old former rental car?
These are the kinds of questions you need to ask yourself. Let’s investigate a little more to arrive at some answers.
Let’s compare a two year old car with a five year old one. And let’s assume that the original price of the vehicle was £30,000. Then, that two year old car will set you back about £20,000. The five year old model will cost 1£2,000.
You can still save £8,000 by opting for the used car. But that’s a lot less than the £18,000 difference with a new car. In fact, some people might argue that the higher quality of the almost new car, the potentially still valid warranty and the lower risk of repairs in the foreseeable future make it the better deal.
A lot will depend on when you intend to sell the car. If you want to drive your car until its wheels fall off, then the used car may be the better option. You’ll simply save £8,000.
If, however, you intend to sell that car again after three years, then the situation looks a bit different.
After three years, you can still sell the almost new car for £12,000. The used car, however, will only be worth £6,750. The initial price advantage of £8,000 has now shrunk to a mere 2,750.
Depending on your budget, that may still be enough to tilt the balance towards the older car. But factor in one or two bigger repairs and you may regret that decision.
All in all, used cars are still the cheaper choice. But you should definitely do the maths to work out just how much cheaper they are for real.
As any expert will tell you, new cars are easiest to finance. Both dealers and manufacturers have an incentive to prevent you from going second hand. They’ll do everything in their power to convince you to buy a brand new car.
Offering generous financing conditions is their most powerful leverage. 0% deals are all over the place and there have been many reported instances where a new car ended up being more affordable than a used one simply because of the great deal you could get on the financing.
So, by this logic, almost new cars should offer the best of both worlds when it comes to loans: Just a bit cheaper than a used car loan. Just a bit more expensive than a loan for a new car.
In reality, almost new cars are actually not that easy to finance.
Firstly, we need to take a step back from the idea that new cars are best. Yes, conditions can be great. The typical APR for a new car tends to be lower than the rate for a used car. This means that new car loans are cheaper than used car loans.
However, they are not more affordable. Because a new car is a lot more expensive, monthly repayments are a lot higher. Zero percent deals are only offered to select customers and they come with a lot of limitations in the fine print.
Many potential buyers won’t even get offered a loan for a new car at all. The bank or dealership simply won’t trust them to pay it back. So it’s a theoretical benefit at best.
With used car deals, your options are far more flexible. Even if you’re looking for a bad credit car loan, you should be able to find an offer that suits you. Plus, monthly payments are far lower, which means you should be able to afford them even with a tight budget.
From the perspective of a dealership, the reduced price should be incentive enough. They won’t want to loose any more cash on the financing. So there’s no further need to win you over with a great loan.
Manufacturers are out of the picture anyway, as they don’t make any money on both used or almost new cars (unless it’s a Certified Pre Owned). And for most banks, even an almost new car is too expensive for most customers. In fact, their risk is arguably higher, since the potential resale value is lower.
And so, almost new cars are not the best of both worlds in terms of financing, but rather the worst of both worlds. A lot will depend on the actual deals, as things may pan out differently. But as a general rule, used cars are still by far your best option if your credit rating isn’t perfect.
Another point to consider is the way almost new cars are typically driven. PCPs will most likely be pretty much the same as any regular used car. But former leasing vehicles and rentals tend to be driven by frequent travellers. They tend to rack up a lot of miles in a short period of time. It is by no means impossible to find two year old models with 60,000-80,000 miles on the odometer.
Also, these cars are driven by changing drivers with many different styles. This can wreak havoc on a car’s mechanics. Certainly, these almost new cars may still look and feel new. But underneath the hood, they are anything but.
This doesn’t mean almost new cars are a bad idea per se. What it does mean is that you need to take an even closer look at the condition of the car. Mileage may be among the most important aspects to consider. It is certainly far more important than with a ‘regular’ used car.
Almost new cars are not a temporary phenomenon. As PCPs and leasing continue to win over more and more drivers in the UK, they will outgrow their niche status and make up a larger market segment.
If you’re wondering whether or not they are right for you, the first question you should ask yourself is whether you can actually afford them. Almost new cars are still a lot more expensive than used models and they are harder to finance.
Secondly, you need to take a very close look at the vehicle and inspect it thoroughly. Generally speaking, these cars can be fantastic. But there is also a risk of the car having been subjected to a lot of hard driving.
Almost new cars are a welcome addition to the market. But when it comes to affordability, nothing beats a good old second hand vehicle.
31 December 2019 Concept Car