Earn Your Leisure Podcast Summary

Episode: Should You Buy New or Used Cars? Pros, Cons & Insider Tips Revealed!
Release Date: February 24, 2025
Hosts: Rashad Bilal and Troy Millings
Guest: Car Expert

Introduction

In this insightful episode of Earn Your Leisure, hosts Rashad Bilal and Troy Millings delve into the age-old debate of whether to purchase a new or used car. Featuring expert insights from a seasoned Car Expert, the discussion navigates the financial implications, benefits, and potential pitfalls of both options, providing listeners with the knowledge to make informed automotive decisions.

Pros of Buying Used Cars

Cost Savings: One of the primary advantages of purchasing a used car is the significant cost savings. The Car Expert emphasizes that used cars can offer substantial savings upfront, making them an attractive option for budget-conscious buyers.

Depreciation Benefits: New cars typically depreciate quickly within the first few years. Buying used allows buyers to avoid the steepest part of this depreciation curve, retaining more of the car's value over time.

Long-Term Investment: For those planning to keep a car for an extended period, especially with high mileage (over 20,000 miles per year), a used vehicle can be a more economical long-term investment. As the Car Expert notes, "If you're going to keep a car and drive a lot of mileage, it makes sense to buy used" (01:46).

Cons of Buying Used Cars

Higher Interest Rates: Used cars often come with higher interest rates compared to new cars. The Car Expert points out that "used car interest rates right now are in the sevens" and can range from 7% to 14% (05:34), which can add significantly to the total cost of the vehicle over time.

Potential for Hidden Issues: While buying from an authorized dealer mitigates some risks, purchasing from private sellers or uncertified lots can lead to unexpected repairs and maintenance costs. The lack of a comprehensive warranty on non-certified used cars can result in additional expenses.

Warranty Limitations: Used cars may come with limited warranties. The Car Expert explains that warranties can be tied to mileage and time, often leading to coverage lapsing sooner than expected. For example, "your warranty starts from the date of first use" and "it's mileage or time, whichever one comes first" (09:58).

Pros of Buying New Cars

Full Manufacturer Warranty: New cars come with full manufacturer warranties, providing peace of mind and coverage for any defects or issues that arise shortly after purchase.

Latest Technology and Features: New vehicles often boast the latest advancements in technology, safety features, and fuel efficiency, offering a more modern and efficient driving experience.

Financing Benefits: Buyers of new cars may benefit from lower interest rates and more favorable financing terms. The Car Expert highlights that certified pre-owned vehicles from dealerships often come with better interest rates, reducing the overall cost of the loan (05:24).

Cons of Buying New Cars

Rapid Depreciation: New cars lose a significant portion of their value within the first few years. The Car Expert notes, "In 2019 cars were depreciating about 3%. And in 2021 and 2022, they jumped up 32 to 36%" ([03:15](#hypothetical timestamp)), highlighting the financial hit buyers take when purchasing new.

Higher Initial Costs: The upfront cost of new cars is substantially higher than used cars. Additionally, long-term financing at higher interest rates can make new cars more expensive over time.

Negative Equity Risks: When financing a new car, buyers may end up owing more than the car is worth if the vehicle depreciates faster than they're paying down the loan. This situation, known as being "upside down," can trap buyers in a cycle of negative equity (07:33).

Financial Considerations: Interest Rates and Loans

The Car Expert underscores the importance of understanding interest rates when financing a vehicle. Higher interest rates on used cars can lead to significantly higher total payments over the life of the loan. For instance, "if you're doing a 72-month loan, right, that's $7,200 that you're adding in finance charges" (05:34). Additionally, simple interest loans mean that in the early stages, most payments go toward interest rather than reducing the principal balance, exacerbating depreciation issues.

Warranties and Extended Coverage

Warranties play a crucial role in the decision to buy new or used. Certified pre-owned vehicles from authorized dealers come with extended warranties that often serve as an extension of the manufacturer's warranty. The Car Expert advises, "You have to do the research. You have to read the fine print whenever you're signing these contracts" (09:30), cautioning buyers to scrutinize extended warranty terms to ensure comprehensive coverage without hidden pitfalls.

Market Trends and Pricing

The pandemic significantly impacted used car pricing, with prices skyrocketing from an average of $20,000 in 2020 to over $30,000 in 2022. While the market is beginning to stabilize, prices remain higher than pre-pandemic levels. The Car Expert anticipates that by the end of 2025, prices will start to decrease as new car inventories replenish ([04:15](#hypothetical timestamp)).

Negative Equity and Lease Options

Rolling negative equity from an existing loan into a new vehicle can create a vicious cycle of debt. The Car Expert recommends leasing as a potential solution: "At the end of three years, you walk away. Now you're out of that negative equity cycle and your payment's going to be much lower" (09:30). Leasing can help consumers avoid the long-term financial burdens associated with negative equity, though it may require upfront payments to secure favorable terms.

Key Takeaways

• Assess Usage and Longevity: If planning to drive high mileage and keep the vehicle long-term, a used car from an authorized dealer can offer better value.
• Understand Financing: Higher interest rates on used cars necessitate careful calculation of total loan costs. Opt for certified pre-owned vehicles to secure better financing terms.
• Scrutinize Warranties: Always read the fine print on warranties to ensure adequate coverage, especially when purchasing extended warranties on used cars.
• Monitor Market Trends: Stay informed about market fluctuations to time purchases optimally, potentially saving money as new inventory levels normalize.
• Consider Leasing: For those trapped in negative equity cycles, leasing may offer a path to lower payments and eventual financial freedom from car-related debt.

Conclusion

This episode of Earn Your Leisure provides a comprehensive examination of the factors influencing the decision to buy new or used cars. By weighing the financial implications, understanding market dynamics, and considering long-term strategies like leasing, listeners are better equipped to make choices that align with their financial goals and personal needs.

Notable Quotes

• Car Expert (01:46): "If you're going to keep a car and drive a lot of mileage, it makes sense to buy used."
• Car Expert (05:34): "Used car interest rates right now are in the sevens. You have to do the big math, not just a little math."
• Car Expert (07:33): "You can get into a really bad cycle of rolling negative equity into the next car and the next car."
• Car Expert (09:30): "Your best option to end that cycle is to lease a vehicle."

Timestamp references are indicative based on the provided transcript and correspond to the minutes and seconds markers within the episode.