Used Cars vs Nearly New Cars: Which Is the Smarter Financial Choice?

A brand new car loses an average of 40% of its value in its first year on the road. This is the industry average of all the makes and models.

Also, we consider almost new to be any car that is 6 months to 3 years old and used to be 3 years or older. This one decision will make a difference of thousands of pounds to you over the time you own the car. The correct one will all depend on your budget, your requirements and your driving habits.

Finance and Insurance Costs

The sticker price is only a smart part of the total amount you will actually pay over the term of your agreement.

Nearly New

Nearly new cars get low APR rates, usually sitting between 3 and 6 per cent, and often even lower on promotional PCP deals.

The manufacturers subsidise these rates to move new stock. PCPs in particular are structured almost entirely to favour cars less than 12 months old.

You never get a comparable deal on an older car. HP agreements are available for both types of car, but there is far less fine print on HP for used vehicles.

Used

Used cars almost always come with much higher APRs, usually ranging from 6 to 12 per cent, even for buyers with good credit.

You can often get much more flexible terms if you use used car loans in the UK rather than dealer-arranged finance. This can close a huge amount of the gap between the two options.

You will also be borrowing a far smaller total amount, which means even at a higher rate, your monthly payment can still end up lower.

Running Costs Analysis

This is the cost that will drain away from your bank account every single month, and it is very easy to underestimate.

Nearly New

Nearly new cars have much more modern engine technology, and will almost always return between 10 and 20 per cent better fuel economy than an equivalent car that is five or six years old. Most also qualify for zero or £20 a year road tax, and every single one is ULEZ compliant in the UK.

You will be required to use a main dealer to keep your warranty valid, and a routine service can easily cost two or three times as much as the same work at an independent garage. The wearable parts are also covered under warranty for the first few years, so you will have almost no unexpected bills.

For anyone who does not have an immaculate credit file, you can also apply for personal loans for bad credit with a direct lender. This will almost always give you a better rate than any dealer will offer someone with imperfect credit.

Used

Older used cars have far less efficient engines, and you will notice the difference at the petrol pump every single week. Road tax for most cars registered between 2010 and 2017 is a flat £185 a year.

The cars older than 2016 are also not ULEZ compliant. You will face a £12.50 charge every day you drive into any ULEZ zone. You can use any independent garage you like for servicing and repairs.

This will cost less than half the main dealer price, and aftermarket parts are cheap and widely available. You should budget to replace tyres and brakes within the first 12 months of ownership for most used cars.

Total Cost of Ownership (3 Years)

Cost Category

Nearly New (£)

Used (£)

Purchase Price

20,000

12,000

Depreciation

6,500

3,500

Insurance (annual × 3)

1,800

1,200

Road Tax (annual × 3)

165

495

Servicing (annual × 3)

900

600

MOT (× 2)

0

110

Repairs

200

1,200

Finance Interest (HP)

1,800

2,400

Total 3-Year Cost

31,365

21,505

Technology and Safety Features

This is the area where the gap between nearly new and used has widened more than ever in the last ten years.

Nearly New

Nearly every new car sold in the UK meets Euro 6 emissions standards and has automatic emergency braking fitted as standard. Most also come with lane assist, blind spot monitoring, adaptive cruise control and much better crash protection than older models.

Almost all will have Apple CarPlay and Android Auto built in, and digital dashboards are now standard on almost every trim level. The independent crash test ratings have also improved, so a nearly new car will offer better protection in an accident.

Used

Most used cars under ten years old will have basic safety features like airbags and ABS, but almost none will have any of the advanced driver aids that prevent accidents from happening. The infotainment systems are almost always outdated.

The retrofit options for advanced safety features are effectively nonexistent. Most cars older than 2016 are also Euro 5 emissions standard or older.

Warranty and Reliability Factors

This is the unknown for most car buyers.

Nearly New

Nearly new cars will still have the full original manufacturer warranty, which runs between 3 and 7 years for most brands sold in the UK. The approved used cars will also have had any outstanding manufacturer recalls completed before they are put up for sale.

The full official service history is always verified and provided as part of the sale, and most will also include 12 to 36 months of free roadside assistance. You can also almost always extend the manufacturer's warranty for a very reasonable price.

Used

For used cars, the original manufacturer's warranty will almost always have expired. Some dealers will offer a 3 to 6 month warranty as part of the sale, but these are almost always third-party warranties with a very long list of exclusions.

You do, however, have access to full public MOT history, which will show you every fault the car has ever had, and gives you a far more honest picture of its real condition than any dealer description. Higher mileage means more wear on every moving part. You should always expect something to need replacing in the first two years of ownership.

You are 100% responsible for all repair costs once you drive the car away. You should always pay for an independent inspection before you agree to buy any used car.

Conclusion

In the case you appreciate zero unexpected bills, and you would be replacing the car once more in three years, a slightly used car is the best option.

A used car is far the better choice, should you wish the overall cost to be lowest, or if you intend to drive the vehicle over a period of five years or more. Do not make this choice based on the price on the windscreen.