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Should I Buy a New or Used Car?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

new or used car
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You need a car, and the new cars you see look beautiful. They’re clean, smell nice and have every latest gadget and technological advancement. You figure a new car won’t break down, and it comes with a warranty and the option of a service contract. It’s so easy to go to a new car lot and sign on the line for the car you want.

On the other hand, you can get a used car for less, and drive it for years to come. But you dread haggling with the owner or you’re leery of a used car’s questionable history. If you hate to part with more money than you have to, you may agree with author and consumer advocate Beverly Harzog who said, “I have a visceral reaction to buying a new car.” Buying this year’s model may feel like an extravagant waste of money.

So which is better, a new car or a used one? It depends on you and your situation. Before you decide to buy a car, make sure you understand the advantages and disadvantages of buying new or used. Just as importantly, be sure you know why you are buying a car, what you want and need from it and what you can afford.

What are the advantages of buying a new car?

New cars have some advantages, which can sometimes make them worth the higher price tag, an average of $37,169, according to Kelley Blue Book, nearly twice as much as the average used car price of $20,247.

New cars offer the latest styling, technology and safety features

Car models tend to go four to six years between major redesigns. It can be difficult to tell this year’s model from last year’s, or even one from several years ago. If you’re a car aficionado and you want the look of the newest model, however, you may not mind paying for it.

Technological and safety features have made big strides in recent years. Heated and ventilated seats, 360 degree cameras and USB ports are common, though it’s likely you’ll have to upgrade to a higher trim level or pay more for some of these features. Some cars even offer features that were unheard of a few years ago like parking assist, which may help cars maneuver into a parking spot with limited or no driver assistance.

A new car should need fewer repairs in the first few years

New cars should spend less time in the shop than older ones do. Car parts wear out, often at fairly predictable rates.

Although the difference in repair costs varies between brands or even models within a brand, these costs trend higher as cars age. Using Edmunds’ True Cost to Own tool, for example, a consumer near Seattle who owned a 2014 Accord Sedan EX four-door sedan (2.4L 4-cylinder CVT) paid on average $320 for repairs in the first year of ownership. In the fourth year of owning the same car, the average amount rose to $507.

Buying a new car at the dealership is easy

Brand-new cars are sold by dealerships, not private parties or secondary dealers, which makes buying one fairly straightforward. Simply drive to a dealer, and they’ll be happy to sell you a car.

Because the car is new, you don’t compare mileage on one car with that of another, or worry about whether the car has been in a wreck.

The dealer will even be happy to sign you up for financing on the spot (although that might not be your best deal).

Some dealers offer new car incentives

Some dealer and manufacturer incentives are available to everyone, while others only work if you meet certain criteria, such as being a veteran or living in certain geographical area. For example, Toyota offers a $500 military rebate to qualified service members and veterans. You may qualify for 0% financing incentives, often available to customers with excellent credit. Although new cars are still more expensive than used ones, sometimes a new car incentive can help bridge the gap.

New cars often have better warranties and service contracts

A new car shouldn’t be spending much time in the shop, but if it does, a warranty or service contract can give you peace of mind. The contract may also help you maintain your car in top condition while it is in force, but research the pros and cons of extended warranties before signing.

What are the drawbacks of buying a new car?

If cost were not a factor, perhaps most of us would buy brand new cars every time. In the real world, however, we have limited funds and we need to make the best use of them. Here are three drawbacks of buying a new car.

New cars cost more than comparable used cars

“The gap between pricing of new and used cars is becoming pretty wide,” said Matt Jones, senior manager of Insights at Edmunds. “The average new car price is now about $37,000. A person who is looking to make the most of their money will see a savings on a used car of 30-40%.” When people make payments for close to six years on a car, the more expensive car costs them a lot of money in principal and interest.

“The most bang for my buck, without a doubt, is used cars,” said Jones.

The value of your new car is guaranteed to go down — fast

Cars don’t depreciate (go down in value) at an even rate over their useful lives. Their value tends to drop when they are driven off the dealer’s lot and plummet as much as 50% in the first few years, before slowing down around year five. Those first few years are expensive ones to own a car, when the showroom gleam is first wearing off. Insurance provider State Farm factors in depreciation as well as taxes in its new versus used calculator — plug in the price of a used or new vehicle you’re eyeing as well as your state and local taxes to compare.

It’s easy to overspend on a new car

With new cars, it’s easy to let the amount you are willing to spend creep up beyond what you intended to spend, especially if a dealer emphasizes monthly payments over total sales price. What’s a few thousand here and there when you’re spreading it out over several years?

When you’re bargain hunting for a used car, especially if you’ve saved up all or part of the money ahead, you may be able to stick to a budget more successfully and avoid mistakes.

What are the advantages of buying a used car?

The biggest reason to buy a used car is to save money, saving as much as 30-40%, but there are other reasons, too.

You may get a better car if you buy used

Buying an older car doesn’t necessarily mean settling for less. You may be able to afford a higher quality car if you’re willing to buy it when it’s a few years old. Harzog, the finance author, likes driving a luxury car, such as a Lexus. “I prefer used cars. I keep my cars almost until they turn into dust,” she said. “I’ve only had about four cars in my life.”

By consistently buying used vehicles and keeping them as long as possible, you’ll save over time. AAA estimates that the cost of owning a new car is an average of $8,849 a year — a significant sum if you roll from new car to new car.

You don’t own the car during the years of highest depreciation

If you buy the car after the first couple of years, it’s still a good car. But someone else has paid handsomely for the privilege of driving it new.

Used cars may still have plenty of good miles left

Cars are lasting far longer than they did in the past — Americans keep cars for an average of 10 years, longer for trucks and vans. “The reality is that most used cars, say three or four years old, are going to live for a long time,” Jones said. “Since cars have been built so well in the last few years, a lot of the fears people have can be put aside.”

If you’re worried about buying a used car, Jones suggested buying a certified pre-owned car. “Certified pre-owned is a used car, but it’s a used car that has been treated pretty well and is backed by the manufacturer,” he said. “It’s the best of both worlds. The carmaker is standing behind it.”

What are the drawbacks to buying a used car?

Although you’ll almost certainly save money buying a used car, you should know that buying a used car can be more complicated and sometimes riskier than buying a new car. Here are a few drawbacks of buying used.

You might end up buying someplace besides a dealership

You can buy a used car from many different places, including a reputable used car lot, dealership, website or from a private party. Some people are less comfortable going to used car lots or responding to classified ad listings to find cars. You could buy from a friend, but if anything goes wrong, you can lose the friendship.

It’s harder to compare the values of used cars

Comparing new car prices from one dealer to another should be fairly straightforward. Used cars can have more variables, from the number of miles on the odometer to the condition of the car. This makes it a bit more subjective to determine the value of the car. It’s important to research using a service like Kelly Blue Book or NADAguides.

Older cars require more maintenance and may not be under warranty

The older the car, the more it typically costs to keep it running. Some cars hold together better as the years go by, but they still need regular maintenance, and some parts will wear out. Standard manufacturer warranties vary in length, and some warranties are transferable to new owners, while others are not. Be sure you know if any existing warranty will transfer to you, and how much of the warranty period is left.

Your used car loan may outlive the car

If you buy an older used car, and you finance it for a number of years, be careful. “The danger is that the car is going to continue to lose value,” said Harzog. “You could end up underwater. You’re still making payments on a car, and it’s not worth what you’re paying.”

While this is also possible with a new car, especially if you don’t make a down payment or finance it for a long term with high interest, Harzog recommends that you pay off a used car as quickly as you can.

Is a new or used car better for you right now?

Before you decide to buy new or used, ask yourself these questions:

Do you want a new car? Assuming you can afford it, Jones said, “If you want the new car, get the new car. Maybe there’s new technology, or maybe they want to be the first butt to sit in that seat.” Buying a car is an incredibly emotional decision, and as long as you’ve done your research, buying the right car is more important than deciding to buy new or used. “Make sure you buy what you want,” said Jones. “That sounds obvious, but it’s not. When people buy cars they don’t want and they end up trading them in later, that mistake is far more expensive than any other mistake they could make.”

What will you use the car for? If you need a car simply to get to work safely, the latest technology and styling may not matter much. If you use your car in your work; for example, you drive clients around in your car, you may need to keep up with appearances. You may also need a newer model or specific features if you transport people or goods, if you live somewhere with inclement weather, or if dependability is your top priority.

What can you afford? If you have cash saved to buy a car, you know how much you can pay. If you’re financing a car, whether it’s new or used, make sure you can make the payments. “Just as a guideline, your car payment shouldn’t be more than 10% of your gross income,” said Harzog. “You just want to be sure you have enough cash to cover it. It’s a line item in your budget.” You could use an auto calculator to help you make your decision.

The bottom line

Buying a new or used car can significantly impact your financial life for years to come. A good car-buying decision can help you feel more secure, giving you reliable, affordable transportation. A bad decision, on the other hand, can cause stress and keep you from reaching your other financial goals. In the worst-case scenario, you could even lose your car and wreck your credit if you can’t make the payments.

Whether you buy a new or used car, the secrets to making good purchasing decisions are research, research and research. Before you buy a car, be sure you know why you are purchasing and what you need it for. Make a budget and know exactly what you can afford. And research cars, so you know what kinds of cars you are interested in, and what you should expect to pay, before you negotiate a good deal on your next car.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

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Auto Loan, Reviews

Review: Wells Fargo Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Wells Fargo Auto Loan

If it’s time to get a new or used car, it’s time to do your research. Perhaps you’ve picked out the car of your dreams and you want to figure out the best way to pay for it.

When it comes to financing a vehicle, you have a ton of choices. Wells Fargo, founded in 1852, is one of many places to consider getting an auto loan from.

Wells Fargo Auto, a division of Wells Fargo Bank, serves more than 3 million auto loan customers throughout the United States.

About Wells Fargo

Wells Fargo offers new and used vehicle financing through its network of 11,000 active car dealerships, but it’s possible to apply with the bank directly if you’re interested in financing outside of the dealership or refinancing an existing auto loan. You could also use a Wells Fargo personal line of credit or loan to buy a car from a private seller or buy out your leased vehicle, but you may have to pay an annual fee or origination fee. A home equity loan or line of credit is another possibility but puts your home at risk should you default on your car payments.

It’s worth noting that Wells Fargo continues to compensate auto loan customers who were charged for insurance they didn’t need or add-ons after their car loans were repaid or their vehicles repossessed. The bank’s redress program came after a December 2018 settlement with attorneys general from all 50 states calling for $422 million to be repaid to auto loan customers.

Wells Fargo: At a glance

  • Loan terms up to 72months
  • Loan amounts between $5,000and $100,000for new and used auto loans.

Because a majority of Wells Fargo’s loans are through dealerships, what’s known as indirect lending, you may not know your exact rate or terms until you apply through a dealership. A Wells Fargo spokesperson said rates are based on a number of factors, including the borrower’s credit history. While the best rates and terms tend to go to those with the best credit, it’s possible to be approved with less-than-stellar scores at Wells Fargo.

Wells Fargo also offers loans for those looking for specialty vehicles like motorcycles or recreational vehicles. Existing customers may be eligible for a discount if they use autopay to make their vehicle payments from a Wells Fargo consumer checking account.

A closer look at Wells Fargo auto loans

Highlights of Wells Fargo auto loans

  • Multiple ways to pay: You could make your car payment through the bank’s online eServices function, automatic loan payments or at any Wells Fargo branch.
  • APR discount: Wells Fargo offers a 0.25% discount for existing customers who use a consumer checking account to make automatic payments on its car loans.

Lowlights of a Wells Fargo auto loan

  • Mix of direct and indirect loans: While it’s possible to apply directly through Wells Fargo for an auto loan, most of its auto lending is through dealerships.
  • Negative press: In addition to fines Wells Fargo has had to pay in regards to its auto loan customers, it has been fined for the way it treated mortgage customers as well. In all, the bank has agreed to pay billions in settlements and consent orders.

How to apply

As we’ve already mentioned, most customers apply through one of 11,000 dealerships in the Wells Fargo network. But applying outside of the dealership is possible — a Wells Fargo spokesperson said customers may call or visit a branch for more options. It’s possible to apply for a refinance loan online, in person or by calling 800-289-8004. We’ll talk more about refinance loans in more detail, below.

Here’s what the bank will want to know about you and your car:

  • Personal information: Address, contact information, date of birth and Social Security number.
  • Country of citizenship information
  • Marital status (Wisconsin only)
  • Housing information: Whether you rent or own and for how much as well as information about previous recent addresses
  • Income information: Your occupation, gross monthly income and previous employer
  • Information about your car: Year, VIN, mileage and remaining loan balance. You can find out your remaining loan balance by calling your current lender.

The fine print on an auto refinance loan

The only way to make sure you’re getting the best deal on a loan for a new car or to refinance the one you have is to shop around. Make sure a refinance really is in your best interest and that you understand Wells Fargo’s criteria before you sign:

  • Minimum loan amount of $7,500
  • Co-signers allowed
  • Not offered in Alaska, Arkansas, Hawaii, Louisiana, North Dakota or Washington, D.C.
  • May be difficult to get approved if your vehicle has more than 100,000 miles or is 8 years or older.

Once you have applied, Wells Fargo will contact you by phone, mail or email. You’ll have the option of signing and returning the loan package by mail or finishing the process online.

Who is a Wells Fargo auto loan best for?

Wells Fargo auto loans can be a good fit for those in the market for a new or used vehicle, or folks looking to refinance a current loan. It may be the best option for existing Wells Fargo customers looking to refinance — it’s possible to apply directly through the bank, online and, if you’re willing to make auto payments, you may score a lower interest rate.

A Wells Fargo auto loan might be good for anyone shopping for a new or used car as well, but the only way to make sure you’re getting the best rate, particularly if it’s one offered through the dealership, is by comparing it with your preapproval offer from another bank, credit union or online lender.

A Wells Fargo auto loan is not a good fit for anyone interested in a private party auto loan. For those, look to competitors such as Lightstream, Bank of America or a credit union.

Lindsay Martell contributed to this report.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Auto Loan, Reviews

Review: Bank of America Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Bank of America Auto Loan

The history of Bank of America dates back to more than two centuries, but that doesn’t mean its banking services are stuck in the past. In recent years, Bank of America has modernized its service offers by adding mobile auto lending services that allows buyers to choose a car and a car loan in one place. Yes, you can apply for its loans in person at a branch or over the phone, but it’s hard to beat the speed and convenience of applying from home or anywhere you use your smartphone.

According to Bank of America, you could receive a loan decision within 60 seconds of applying, which is about as fast an approval as you can get from any lender, whether in person or online. But don’t be so quick to gloss over the details. While you may get approval decision within a minute, you might not be getting your lowest rates. Bank of America offers competitive rates for new car financing and a discount for certain customers, but other lenders may be able to beat Bank of America when it comes to used car loans and refinancing.

About Bank of America

Bank of America’s online auto buying experience starts when you submit an electronic application through its website where you have the option to use your loan approval to shop for and buy your car through Bank of America’s network of participating dealerships. Once you get your loan approval you can visit the Bank of America website or use the banking app to search a national inventory of more than one million cars, then visit dealerships for test drives and to finish the paperwork.

You can also use a Bank of America loan to buy a vehicle outside of the network. The bank offers loans for:

For specific rates for used and new cars as well as loans you could use to refinance your existing car or to buy out your leased vehicle, see the chart below.

Bank of America: At a glance

  • Loan amounts starting at $7,500
  • Terms between 12 and 60 months

Bank of America offers a wide variety of loans, but its loans aren’t available for specialty vehicles such as motorcycles or RVs. Financing is available to residents of all 50 U.S. states who borrow a minimum of $7,500 ($8,000 in Minnesota), but it can’t be used to buy cars that are over 10 years old or with more than 125,000 miles.

Advertised rates for new car loans are comparatively low, but to find the lowest APR for your loan you’ll need to do some comparison shopping. Rates vary depending on what kind of purchase you’re making, where you shop and the condition of your credit, with the lowest rates available for buyers with excellent credit when they purchase a new car from a dealer. Bank of America advertises much higher rates for private party purchases.

Compare Auto Loans
 New from dealerUsed from dealerUsed from private party*RefinanceLease buyout*
Bank of America3.19%3.39%5.99%3.99%4.19%
Chase4.24%4.24%N/A4.89%N/A
LightStream3.99%3.99%4.99%3.99%4.99%
*Bank of America lease buyout and private party loan rates are current as of Sept. 18, 2019.

If you bank with Bank of America or have an investment account with its wealth management subsidiary, Merrill, you may be eligible for lower rates. Preferred Rewards members get a rate discount at 0.25% for Gold members, 0.35% for Platinum members and 0.50% for Platinum Honors members.

Your eligibility for Preferred Rewards is based on the average asset balances held by Bank of America and/or Merrill over the three months prior to your application, with a minimum average balance requirement of $20,000. You can enroll for free to see if you’re eligible.

A closer look at Bank of America auto loans

Advantages of Bank of America auto loans

  • Loan approval offers lock in your terms for 30 days. That gives you time to shop around and find the car you want.
  • No application or origination fees, unlike some other lenders.
  • No prepayment penalty, meaning you can pay off your loan early and potentially save on interest charges without being penalized.

Disadvantages of Bank of America auto loan

  • Other lenders’ rate discounts may be easier to qualify for than the Preferred Rewards’ discount. PenFed Credit Union, for example, offers a discount to customers who use its car buying service, which can mean new car loan rates as low as 1.49%*.
  • Loan preapproval isn’t available. That means you’ll likely have to take a hard inquiry into your credit, and possibly lose a few points from your credit scores, just to see the loan terms you’re being offered. However, it’s always a good idea to compare auto loan rates and applying to multiple lenders doesn’t hurt your credit any more than it does to apply to one, as long as you do so within a 14-day window.

How to apply for a Bank of America auto loan

Completing an application online is a straightforward process, and if you’re already a bank member you can choose to have some of the application prefilled. Whether you apply online, in person or over the phone by calling 844-892-6002, you’ll need to submit the following information to complete an application:

  • Name
  • Address
  • Social Security number
  • Employment information
  • Income
  • U.S. citizenship status
  • Email address

You may be asked to submit some of the following information to complete your application, if applicable:

  • Purchase agreement/bill of sale
  • Registration
  • Title
  • Vehicle make, model and year
  • Mileage
  • VIN number
  • Lease buyout instructions
  • Proof of income
  • Federal tax returns
  • W-2s

To apply in person, you can make an appointment through the website or walk into a bank branch and talk to a representative. Setting an appointment allows you to avoid waiting and helps ensure a specialist will be prepared with the information you need.

Once you’ve submitted your application, loan decisions are quick. Even if further review is needed after you submit your application, you’ll receive an email with your decision by the end of the following business day.

The fine print

  • Loans are only for cars purchased through franchise dealerships or private parties, which does not include independent dealerships except for CarMax, Hertz Car Sales, Enterprise Car Sales and Carvana.
  • If you apply online, you’ll get the details of your approval via email. Make sure to look them over, including interest rates and repayment terms for new versus used car purchases, before you begin car shopping.
  • Loans are available with payment terms lasting up to 60 months. While a longer term can lower your monthly payment, it can cost a lot more in interest charges. Make sure to do the math before agreeing to a long-term repayment.

Who is a Bank of America auto loan best for?

Savvy car shoppers know that using bank or credit union-backed financing for an auto purchase is generally a better option than going through a dealership. But it can be difficult to arrange bank financing and complete a car purchase without putting in the time to contact several different lenders and visit multiple lots.

If you want the security of financing with a large bank with branches around the country, or even from your pre-existing Bank of America account profile, Bank of America auto loans might be the solution for you. They offer some of the same perks as dealership financing, allowing you to apply for a loan and shop for a car, all within the same platform.

But some extra legwork usually pays off: Comparing rates with other banks, plus credit unions and online lenders is the only way to make sure you’re getting the best deal possible.

*Rate and offer current as of June 1, 2019 and are subject to change. Promotional rate is not available to refinance existing PenFed car loans. Terms apply.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Brady
Sarah Brady |

Sarah Brady is a writer at MagnifyMoney. You can email Sarah here