Should You Buy That New Car?
If you’re like me, the prospect of being without a car is a scary one. Cars are what we use to get around, whether it’s a trip to a friend’s house, a restaurant, the grocery store, work, or anything else.
And they cost a lot of money, money that could be put into a 401K or an IRA account for retirement. However, they are sometimes necessary in your life if you don’t have public transportation as an option.
So if your car just died on you and you’re looking for your next set of wheels, you’ve got a big decision ahead of you.
Let’s Go Shopping!
When you’re car shopping, there are several factors to consider. What type of car do you want? What type of car do you need? Is it a sedan with four seats? Is it a pickup with lots of room in the back? What company will you buy from? How dependable is the vehicle you are getting?
The questions go on and on. But the one question that people find the most difficult to come to grips with is also the biggest one: How much will you spend on your next vehicle?
Shiny and New
When you turn on the TV or the radio, it seems like half of the ads you come across are for cars. The new pickup, the new sporty car, the Motor Trend Car of the Year winner, etc.
But when you’re shopping for that new car, you don’t have to go straight for the shiny new model in the showroom or on the TV.
On average, according to CNN Money, buying a used car could save you 30-40% over buying a new one.
And that’s a lot of money. According to CNBC.com, the average price for a new car in 2018 was $36,718. 40% of that cost is $14,687.20. The average cost for a used car in 2019 was $20,200.
That cost is without insurance- which is a required cost of buying and owning a car.
New or Used?
While having a new car is nice, how much benefit does it truly provide? Because when you see that you can save an average of almost $12,000, it may be a lot more tempting to go with a used model.
Many car companies make shopping for used cars easier now, and have more inventory and options to sell.
On top of that, those same car companies are putting many used cars through a “certified pre-owned” process, which includes inspections, some repairs, and often a warranty from the manufacturer.
One of the most crucial and hard-hitting problems with buying a new car is the depreciation. When you buy a new car, it is essentially an investment.
But if you buy a brand new car, as soon as you take it out on the road 2019, you lose about 11% on your investment immediately, because when you take it out of the lot, it is then considered used.
After a year of ownership, the car will have lost about 25% of its original value. Three years later you’re down about 46% from the original price.
By year five, the car would be worth about 63% less. That’s the toll five years of ownership takes on your investment, and it’s brutal.
It’s hard to get a good amount of money back for your car if you want to re-sell it, because all of a sudden, it’s not new anymore.
However, used cars have a drastically lower depreciation rate, and if they go through the certified process, it’s likely that the car will be reliable (although mistakes do happen and unexpected things can come up, no inspection is perfect and neither is any car).
Save Some Money!
If you buy a used car, and save that average of about $12,000, you can use that money towards something else.
You can use it for food. You can use it to buy insurance, or to insure a new driver. You can use it for taxes, or for your mortgage payment. There are many things you can do if you are able to find a reliable car used and save that much cash.
Should You Buy A New Car?
Everyone is tempted to buy a new car. It’s shiny, it’s all yours, no one else has done anything to it, and it has all the new features that were plugged in by the company.
Of course, it all depends on your personal financial situation, goals, and needs. Maybe a brand new car is the right decision for you. If you are preparing for retirement and wanting to put money into a 401K or other investments, probably not.
But it’s worth at least considering used cars from recent years. That way, you can get a car that you need and will probably love, and you can use the rest of the money for other things, and not have to worry about such a fast depreciation rate on your investment.