Buying your own car is on the bucket list of many Filipinos. And for a good reason. Many Filipinos based in high-traffic areas want cars so they don’t need to use public transportation. Others, meanwhile, buy cars to gain more flexibility when traveling to other cities and provinces around the country. For some, it simply is a response to address the growing needs of a family. Indeed, there are several perks to getting a private vehicle.
Before you start searching for a quality car loan, however, you need to find a car first. One of the many things aspiring car owners should first consider is whether to buy a vehicle that is brand new or second-hand. Each one has its pros and cons, and there is a continuous discussion on which type of car is best. Expectedly, the answer differs from one person to another because people have different needs, priorities, and allotted budgets.
To help you choose, here is a quick rundown on all of the key things to consider, particularly the pros and cons of buying new and used automobiles.
Should You Opt for New or Used?
Cars up for purchase are usually divided into two general categories: brand new and second-hand. However, buyers and sellers today mainly use three groups to classify vehicles: new, second-hand, and repossessed. The following segments will explain each type, its differences, and its advantages and disadvantages.
Brand New Cars
The name speaks for itself. Brand new cars refer to vehicles that are still in the same manufactured condition. They have no previous owners and are fresh from the dealership. In short, they are a clean slate.
If people could choose any type of car they like, they would naturally pick a brand new vehicle. As expected though, the higher price tag often comes in the way. Additionally, with the passing of the Auto Excise Tax, prices for brand new vehicles have significantly increased. Nonetheless, many individuals still aspire to have a brand new car.
- Value for Money. While brand new cars cost significantly more than used ones, you can be assured that the unit you are getting is in mint condition. You do not need to worry about major repairs, performance problems, or other hidden issues because the dealership ensures that the unit is in tip-top shape.
- New Technology. Today, manufacturers equip vehicles with a rich variety of features, such as live blind-spot video feeds, remote speakers, mobile phone connection, and GPS, among other things. These new functions can significantly increase the quality of your ride, which can be a huge plus for you in choosing a car.
- Full Warranty Coverage. Dealers often offer full warranty coverage to brand new cars. This should cover any minor repairs or maintenance costs on the vehicle in the first few years.
- More Expensive. As noted earlier, new cars tend to cost significantly more than second-hand units. The high price tag can deter aspiring car owners, especially when they can afford good used cars for a more affordable price.
- Swift Depreciation. Unlike time deposits which grow in value over time, cars are considered as depreciating assets. It simply means that the older or more used a car is, the lower its value becomes. When you bring out the car from the dealers, the vehicle immediately loses a percentage of its original value (which people commonly call the depreciation hit).
- Higher Insurance Rates. Having insurance is useful in cases of accidents, mishaps, or major repairs while on the road. While different insurance companies have varying rates and policies, the main gist is this: the higher the value of your car is, the higher your insurance payments will be.
After tackling the pros and cons of new cars, it is time to take a look at your second prospect: used cars.
Generally, second-hand cars refer to automobiles that already had a previous owner. The technical duration of when a unit is still considered brand new varies from one institution to another, but this is the most common definition that sellers and buyers use.
People looking for used cars can buy them from car dealerships that sell them or acquire them from a private seller. Friends, family members, and acquaintances usually comprise a person’s search network, but there are also individual vendors online. For example, auto-selling sites litter the Internet, so it should not be difficult to find used cars up for sale online.
- Lower Prices. Buyers save significantly more if they opt for second-hand units. The Auto Excise Tax, for example, does not apply to used cars, making them more affordable to people with a tight budget.
- Depreciation Benefits. As explained earlier, an automobile immediately loses some value the moment it leaves the care of a dealer, and it will continue to do so as it is used. As such, the first owners of the car bear the brunt of the depreciation cost. Thus, for people opting for second-hand cars, they could get more value for their money if they acquired a second-hand unit that was not used extensively.
- Lower Insurance Rates. Following the logic earlier, the value of secondhand units is lower, so they have lower insurance rates.
- Possible Defects. The quality of second-hand cars largely depends on their previous users. If the last owner did not handle the vehicle properly, there may be hidden problems that you’ll only discover after you have purchased and driven the car. These issues could pose a risk to your safety, especially while driving on a busy highway.
- Needs Thorough Inspection. Used cars need to be examined with a trained eye to spot any defects and repairs. If you are not familiar with cars, it is important to bring along a trusted mechanic who can inspect the car in your stead.
- Higher Maintenance. Cars that have been used for a couple of years usually need more maintenance, compared to their new counterparts. This could translate to added costs and go beyond the allotted budget in your savings account.
- Questionable Background. When you transact with an individual seller, you can never be fully sure where the car came from. There is the risk of the car having been stolen or involved in a crime, and you, the unaware buyer, could be purchasing a vehicle with a dark history.
For buyers seeking a middle-ground between brand new and used cars, you can look at certified pre-owned (CPO) cars. With these vehicles, the manufacturer makes their own inspection of the unit, applies necessary repairs, and then resells them to new owners. Additionally, these cars often come with a warranty, which doesn’t usually happen for pre-owned vehicles.
Repossessed cars–or repos, for short–refer to vehicles that the bank legally repossessed from owners that failed to make their payments for their loans. The banks then resell or auction off the repos at lower prices in hopes of earning back the rest of the loan they originally lent out to the first owner. Technically, repos are also considered second-hand cars, but they stand out due to their unique circumstances and form their own category.
Repos often get a lot of flak. One of the most common misconceptions is that they do not work properly, so the owner returned them. However, that is not always the case. In 80% of these cases, the owners voluntarily gave up the cars because they experienced a change in fortune and simply could not afford to settle their loan payments anymore. Hence, they return the cars to the bank.
- More Affordable. Because repossessed cars are second-hand units, they are easily more affordable than brand new cars—perfect for individuals working on a limited budget.
- Score Great Deals. If a repo has been sitting for too long, banks may cut down the selling price to generate interest. Hence, there is the opportunity to score a great deal if you are patient enough. That said, you need to be vigilant in watching for these offers because other buyers are seeking to score a great deal as well.
- Trustworthy Sellers. Similar to looking for institutions to start an investment, you need to transact with sellers of integrity. Repos are handled by banks that have reputable track records, so you can feel assured that they have the proper paperwork and other legal documents to back the unit.
- Uncertainty on Quality. Repos are purchased “as is”. This is because while banks repossess a car, it does not mean that they fix it. Hence, once more, there is no guarantee that there are no defects or repairs that need to be done on the vehicle. As with regular used cars, bring a trusted mechanic with you upon inspection.
- Extra Clean Up. Banks usually store the repossessed cars in large warehouses together, and they are not always maintained. Hence, you may need to freshen up the unit or have it cleaned professionally.
- No Test Drive. Repossessed cars are not up for test drives. Some banks will allow you to turn on the engine and check if it works, but giving it a spin on the road is usually not on the table.
- Lack of Warranty. Banks do not offer a warranty for the repossessed vehicle. That said, you can check with the original dealership it was purchased from if there is a remaining warranty on the car.
Where can you find repos? Banks have a list of repossessed cars online, but they typically partner with various websites in showing them. A simple search online can direct you to several platforms where you can check available repos.
Conclusion: Which Type Should You Go For?
There are several factors to weigh when choosing between new, used, and repossessed cars. Admittedly, the most significant thing to consider is your budget. The general advice when determining if you can afford a car or not is whether you can pay for it in three years. If not, then it is most likely beyond what you can afford.
Fortunately, you can rely on Robinsons Bank to help fund your auto dreams. With careful decision-making and financial planning, you can surely find and acquire the right car for you.