There is nothing like the smell of a new car and knowing that nobody else has ever owned that particular vehicle. Buying an automobile like that is exciting, but is it the best way to go? The answer is no. The biggest reason why you should never buy a brand new car comes down to money and it involves more than just cost of the car.
Your New Car Will Depreciate As Soon As You Leave the Lot
As soon as you drive your new car off the lot, it will depreciate. If you financed your automobile, you will immediately be upside down in it. That terminology means that you will owe more on it than it is worth. If that doesn’t discourage you, it should.
The amount your car depreciates when you leave the dealership with it is around 10 percent. You haven’t even got used to it yet and you have already lost about $2,000 on a $20,000 car. By the time you have owned it for a year, it will have depreciated by 15-20 percent. That $20,000 would then be worth around $16,000.
The pattern is around 15-20 percent annual depreciation from the previous year’s value of the car. Therefore, the car that is worth $16,000 at the end of the first year would be worth less than $13,000 in the second year and in the third year, it would be worth about $10,000. By then, the car is worth about half of what you paid for it new. These numbers assume 20 percent depreciation and some cars do not depreciate as fast as others do. Of course, the mileage will vary.
How Old Should Your Used Car Be?
You don’t want to buy a car that is too old because you might end up with one that is nothing but trouble. Moreover, you want an automobile you can depend on for long trips should you need to take one. Certainly, at the least, you should purchase a car that is already two years old. In the example above, that car would still be in good shape, yet only cost around $13,000, which would make a considerable amount of difference on total cost and payments.
However, your best bet might be to purchase a used car that is three years old. Again, as in our example, that $20,000 car would cost only around half that price in the third year. Most three-year-old cars are still in great shape and have many years left on them.
Pre-owned Cars Save You Money on Car Insurance
When you buy a used car that is two years old or more, you get an added bonus. You will save money on car insurance. Brand new cars are more expensive to insure because they are more expensive to replace if totaled or stolen. In fact, if you buy a car that is old enough, it might not even be advisable to carry full coverage insurance. If you don’t owe anything on the car, you will not be required to carry full coverage and older cars are not always worth repairing if they are in an accident.
Older Cars Are Less Expensive to License and Register
States require that owners renew the tags on their cars periodically and many of them base the fees on the age of the car. In some states, tags may be less expensive for an older vehicle. That amount starts to drop considerably over time.
The reasons why you should never buy a brand new car may not apply to you if money is no object or if you plan to keep the vehicle for many years. For example, if you plan to keep it for ten or more years, depreciation is of no consequence.
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