Buying a New Car is a Big Decision
You’ve been thinking about buying a new car for a while. You see the commercials on TV for low-interest financing or lease deals and no question, these are attractive. You’ve now made the decision that you need a new car, for whatever reason, and now it’s time to decide if you buy new or used. It’s a big decision and one that many people don’t think about seriously enough.
Buying a new car has its allure, but it’s important to consider how much you can save, over time, if you buy a used car instead. The average person owns thirteen cars in a lifetime, at an average cost today of approximately $35,000 (Kelley Blue Book reported the average transaction price for light vehicles was $36,000+ in 2017).
If you buy a used car instead of new, you could save as much as $130,000 in your lifetime based on paying $10,000 less for a previously owned vehicle! That money, wisely invested over time would likely double by your retirement age!
If you still aren’t convinced why buying a used car over a new car is a wise choice, here are some good reasons to think about.
It’s often said that new cars lose thousands in value the minute they are driven off the dealer’s lot. Sadly, this is true. According to Kiplinger’s Personal Finance Magazine, a new car loses 60 -70% of its value in the first four years!
A brand new car loses as much as 20% of its value immediately after purchase. In a few minutes, a car worth $30,000 loses $6,000 as you happily drive off the lot. After 4 years that car can be worth as little as $12,000!
Now imagine if you buy that same car, used and 3 years old, you would pay approximately $15,000 depending on the vehicle. The previous owner, who is not as smart as you, has taken the $15,000 hit. You can even drive that car for 2-3 years and sell it for $10,000!
When you take out a loan for any car, you will most likely be paying interest. With average credit, the interest on a typical car loan today is about 5.5%. Over the life of that loan (5 years) for a $30,000 car, you will pay about $4400 in interest., essentially making that car a $34,400 expense. Now consider the fact that this $34,400 expense is for something that will be worth $12-15,000 when you finish paying off the loan. Doesn’t sound like a very good “investment”.
Today’s cars are built to last longer. IHS conducted research in 2015 that showed the average car on American roads was 11.5 years of age. With cars being more dependable today than previously, many will deliver more than 100,000 miles before requiring any major repairs. Therefore, you don’t need to sacrifice overall condition and reliability when buying a good, used car.
New Car Fees and Higher Insurance
When you buy a new car, dealers will charge you for destination fees, shipping fees, and dealer preparation fees. These are unnecessary charges you can avoid by buying a used car as these fees don’t exist and have been paid by the first owner.
As well, when you by a used car, your insurance rates should be much less. Ka-ching…more money saved!
Lower Registration Fees
The rate of annual registration in most states differs depending on the model year and the value of your car. In Colorado, for instance, the registration fee falls during the first few years of the life of the car. The rate is usually higher in the first three years but falls after five years. Therefore, if you are in Colorado or similar rules apply in your state, you can avoid the new car registration fees.
The Bottom Line
Buying a car is a big expense. For most people, it is the second biggest expense after buying a home. It’s a decision to be made after careful consideration since it’s easy to be taken in by the new car salesperson and the allure of the shiny new object. As well, a bad used car can be a nightmare which is why it’s best to follow sound advice when looking at a used car.
If you need some more advice on buying a car, check out the advice from Dave Ramsay (spoiler alert: he is totally against car payments!)
Whatever you decide, if you buy that used car or have a used car you’d like to sell so you can trade-up – bring your car to Econo Auto Painting, we will make it look good again!