Should I Buy a New Car or a Used Luxury Car?

Luxury cars are often called "aspirational vehicles." In other words, they are something many people strive toward purchasing one day. A new luxury car might not be attainable. But a used luxury car might be. The big question is this: Is a used luxury a smart choice?

Consider this scenario: You're prepared to spend $30,000 on your next car. You can easily afford a new non-luxury sedan, like a Honda Accord, loaded with such options as leather, navigation, automatic climate control and a rearview camera.

What if, for about $2,500 less, you could get a three-year-old BMW 328i with just under 10,000 miles on it? Or if the 3 Series is too small, how about a four-year-old Mercedes-Benz E350 with 38,000 miles for about $29,900? It's a tempting proposition. But is it a good choice?

Keep in mind that the prices above are just examples. The actual price will depend on the specific vehicle, where it's being sold and whether it is being sold by a dealer or a private seller.

For the purposes of this article, we're going to use a 2011 BMW 328i and a 2014 Honda Accord EX-L with navigation as our reference points. We've come up with a list of pros and cons of a new non-luxury versus used luxury car-buying decision.

A New Non-Luxury Car

Pros:

• Perfect condition: The car will only have a few miles on it and you are its first owner. A used car's mileage and condition will vary.
• Longer warranty: New cars come with at least a three-year limited warranty and at least a five-year warranty for the powertrain. Some luxury cars have longer warranties, but there may only be a year or two left on them, depending on the age of the car you're interested in buying. Buying a Certified Pre-Owned (CPO) vehicle can offset this to some degree, but you'll have to pay more for the car.
• Better selection: You can go to any franchise dealership and find the new car you want. Used cars are sold everywhere, but they will have a greater degree of variation because of their mileage and condition level.
• Better incentives: The new vehicle may have incentives that can drop the price or offer a low interest rate. Interest rates are typically higher on used vehicles.
• Newer technology: The newer the car, the more modern features it will have. This can apply to safety (more airbags, better crumple zones) and infotainment technology (streaming audio, better smartphone integration).
• Less maintenance: A new car should only need oil changes and tire rotations. Some new cars actually come with free maintenance. If something breaks down, it will be covered under the new-car warranty. The used luxury car might have free maintenance, too, but it may only have a year or two remaining on its coverage.

Cons:

• Higher depreciation: A new car will see its highest depreciation in its first few years. The first year alone is about 21 percent, according to Edmunds data.
• "Vanilla" transportation: The car will be brand-new and it will get you where you need to go, but it won't be a luxury vehicle. This is only an issue if one of the things you want in a car is the ability to wow your friends and family. Or perhaps you had set out to buy a luxury car, but settled on a non-luxury one. You might be feeling a little let down by having to drive a plain-vanilla vehicle.

Used Luxury

Pros:

• A nicer car: This is probably why you're considering the used vehicle in the first place. Luxury cars are filled with nicer materials, such as walnut wood trim, soft-touch plastics and aluminum inserts. The engines are often larger and have more power and (while this is subjective), the styling is usually better. Picture Audi's modern styling versus Volkswagen's conservative style, for example.
• Less depreciation: The first owner of the car has already taken the big depreciation hit. Using the new Accord and the used 328i as examples, the Honda will depreciate by about $4,773 in its first year, while the BMW will depreciate by about $2,903 in 2014, according to Edmunds True Cost to Own^® (TCO^®) data.
• Loaner access: Assuming you are going to have your car serviced at one of the luxury brand's dealerships, you may have access to a free loaner car. That's a nice perk.

Cons:

• Little or no warranty: This depends on whether you are buying the luxury vehicle from a private seller, an independent dealership or from the brand's dealership as a CPO car. (Only brand dealerships can sell CPO vehicles.) If you bought a three-year-old BMW 328i that was not a CPO car, you would only have about a year left on the new-car warranty. A luxury CPO warranty adds about two years to the vehicle's original warranty. If the vehicle still has some warranty remaining, you can always purchase an extended warranty. This, however, will offset the savings you got from buying the used car in the first place.
• More maintenance: Since the used luxury vehicle has more miles, it will usually need more maintenance than the new car. Edmunds TCO estimates indicate that the Honda Accord will cost $3,833 to maintain over five years, while the BMW 328i will cost about $12,784.
• More expensive repairs: Parts and labor rates are more expensive for luxury vehicles. For example, Edmunds TCO puts the five-year repair cost at $7,989 for the used 328i. Compare this to $773 for the new Accord.
• May not have all the options: Just because you're buying a luxury vehicle doesn't mean any particular car will come loaded with all the options. We ran across a number of 328i models that didn't have navigation or a rearview camera, for example.
• Old technology: Assuming the luxury car does have navigation or an infotainment screen, there's a high likelihood that they won't age well. The map data will be years out of date and the infotainment system may not play nicely with your smartphone. If the latest technology is important to you, stick with the new car.
• Less efficient: Since luxury vehicles tend to come with larger and more powerful engines, they are often less fuel-efficient than non-luxury vehicles. Additionally, many luxury-car engines (like the one in our hypothetical 328i) require premium fuel, which also adds to the costs of ownership. The Accord is also 8 mpg more fuel efficient than the 328i, according to Fueleconomy.gov.

Buy the Car That Feels Right for You

Clearly, there are more cons for the used luxury vehicle than the new non-luxury one. But a decision like this one isn't completely based on dollars and cents. If that were the case, you wouldn't be looking at luxury cars at all. We've compared the costs of buying new, buying used and leasing, and found that a used non-luxury vehicle would make the most sense.

Take some time to prioritize what you want in a car and weigh the pros and cons. Ultimately, you will be the one driving it and making the payments on it. Cars are also emotional purchases, so if the used luxury car makes you feel good, go for it. With your eyes wide open, buy the car that makes you the happiest — even if it wouldn't be the right choice for someone else.