Kip Tips


When It Pays to Buy a New Car

Cameron Huddleston

Sometimes certified pre-owned vehicles are more expensive.



Usually my husband and I buy used cars. But in 2009 when the government offered a special tax break for new car buyers, we bought a new minivan. The price difference between the new and used models of the vehicle we wanted was small, and the tax write-off sweetened the deal.

There are other times when buying a new car -- rather than used -- makes more financial sense, according to the June issue of Kiplinger's Personal Finance. Here's why:

Since the recession began, certified pre-owned (CPO) vehicles have been hot commodities. They offer an almost-new-car experience (extra warranty coverage, like-new condition and low mileage) for a used-car price. Last year, automakers added financing incentives as low as 0.9% to sweeten the deal even more and help justify the premium for certified vehicles, which fetch up to 10% more than noncertified vehicles.

But that push, combined with low levels of leasing (the primary source for CPO vehicles) for the past few years, has driven prices through the roof. In some cases, a 1-year-old certified vehicle is more expensive than the new model. For example, Edmunds reports that you'd pay $428 a month (with a five-year loan) for a 2011 Honda CR-V, while you'd pay $440 a month for a certified 1-year-old CR-V -- partly because of higher financing costs. The difference over the life of the loan is $720. Older CPOs don't have the same price disparity, but they're harder to find these days.

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If you choose a certified model, be sure you're getting the manufacturer-backed certified program. The car may have an official label, but if not, the certification should be in the paperwork. Be wary of dealer-certified cars -- they're often extended warranties in disguise and offer very limited terms.

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