Do you, like many individuals, feel that buying a brand new car is a right of passage, or a reflection of status? Do you feel satisfied with the ability to select the exact model, color and features when purchasing new? Well, if you’ll lend us your ear, we’re hoping to sway your opinions…
Buying a new vehicle is a poor investment.
Why? One word: depreciation. Your vehicle will lose approximately 22% of it’s value in its first year, and after 5 years, that deprecation sky rockets to about 55%.
Ownership
Until your financing is settled, you don’t actually own your vehicle. If for any reason you begin to struggle financially and can’t make your payments – guess what? The bank will come in, take your car, and then resell it, leaving you with nothing but a bad credit score. This is of course also the case if you finance a used car, but the lesser the loan, the more quickly you can pay off the debt.
Warranty and Repair Costs
Even with a factory warranty, you still need to consider repair and maintenance costs. Most people finance their vehicles for 5 years. The average manufacturer warranty is good for just over 3 years. So take those hefty monthly payments you’re making on your brand new vehicle and tack on vehicle maintenance and repair costs – and you can be paying a significant amount of money to drive and maintain a vehicle that you don’t yet even own.
Additionally, if you buy used from a dealership, they’ll almost certainly include or offer some sort of warranty on the vehicle. This blows the argument to buy new solely for a factory warranty right out the window (no pun intended).
Taxes and Insurance
In most states, taxes and insurance rates for a brand new vehicle will be significantly higher than on a used vehicle.
Value
Used cars can be of far greater value. Purchasing a new car that’s between 3 and 4 years old can be a great investment. At this age, the previous owner(s) ate much of the initial depreciation, leaving you with a vehicle that you can drive for several years, and then likely sell for close to the purchase price.
In short…
Buying a used car is a far better financial decision, but you’ll need to do your homework. Buy your vehicle from a dealership or a reputable source, get a vehicle history report, and whenever possible, have your local mechanic take a look at the vehicle before purchasing. These steps should help ensure that you’ll end up with a reliable vehicle for a fraction of the cost of buying new.