Don’t Finance New; Buy a Used Car Instead
Why buy a new vehicle when you could buy one of the many used cars in Albany NY? When it comes to buying new vs. used, the cons of a new vehicle outweigh the pros. Coming from a family who only ever owned used cars, I can say that statement holds true. It was always great finding a diamond in the rough on the Craigslist ads and paying cheap money for a car that lasted two or three years. Not only was it a no-strings attached process, but it saved us a lot of money in the long run. After all, new car financing is extremely expensive thanks to the MSRP, lengthy car loan, and insurance cost. On top of that, you’re paying full price for something that you’ll never be able to make all your money back on thanks to the depreciation of the vehicle. While buying new isn’t a good idea for that reason alone, a two-to-three old vehicle that’s depreciated means thousands of dollars in savings for the savvy used car buyer.
Need more convincing? Check out some more elaborate explanations on why used is the way to go.
Why Not New
For whatever reason, some people call a new car an investment. You’ll hear this a lot, but it’s just not true. The literal definition of investment from Merriam-Webster is “the outlay of money usually for income or profit.” In this sense, a new car is not an investment. Not by a long-shot. Instead, you’ll be sad to learn that throwing money at a new car is actually a great way to lose money — not make it, let alone even break even on the deal. You are putting money into a product that will lose value the moment you drive it off the lot, and for every year after that until the paper value of said vehicle is zero. This isn’t just a sound investment, but a bad idea in general when the truth is exposed.
In the first year, the average car depreciates by about 20%, then tapers off to 15% for each year after that. When it hits year 10, it will be worth only 10% of the original price. That means the average car loses almost a quarter of its value in the first year alone. When does the depreciation begin? As soon as you drive it off the lot, actually. This means that theoretically, there is no way for you to make your money back on the vehicle even if you’ve only owned it for 10 minutes. Scary, huh?
Higher Insurance Costs
The world of car insurance is all about calculated risk. The companies base their rates on how likely you are to file a claim in the future, and use a number of factors to determine this. While having a good driving history, job, and finally making past the age of 25 helps keep your insurance rates down, that doesn’t mean insurance is ever going to be cheap. Especially on a new car, where you’ll want to get the best coverage possible — not just the bare minimum.
Why? Because, you paid a lot for that new vehicle, as opposed to someone who might have only spent $2,500 on a used vehicle and just wants basic coverage on it.
Expensive Car Means Expensive Loan
This is perhaps the most obvious drawback to a new car: the loan. Not only will you be paying anywhere from about 4%-6% in monthly interest (if you have good credit, that is), but you’ll also be paying off the cost of the vehicle as well. The average new car loan term has increased to six-and-a-half years, which is a long time. While that might seem like a good idea because your monthly payments are smaller, it’s always best to pay off your loan as quickly as possible. The amount of interest paid at the end of the loan term would be astonishing to look at. Couple that with the drop in value of your vehicle over six years, and paying for your car insurance, and you’re looking at an unnecessarily expensive “investment.”
And for what? That new car smell and updated (but unnecessary) technology? Even if you are buying it because it has virtually zero miles, that doesn’t guarantee a hassle-free driving experience. There is always the threat of a recall on your model, and there are multiple consumers out there that refuse to buy a new car simply because they believe the build quality has gone down. Don’t believe them? Ford, opting for an aluminum bed in their pickup trucks to enhance fuel economy, is a prime example of this. Who in their right mind would purchase a pickup truck for the job site, if an empty toolbox dropped off the bedrail can put a hole in the truck bed?
Why Buy Used?
Buying yourself a used vehicle, on the other hand, is a much smarter option.
While it’s still not considered an investment, if you get a vehicle that’s over five or so years old then it will have already suffered through most of its depreciation. Not only are you buying it for cheaper than the current model, but you’re also going to make back closer to what you paid for it if you decide to sell it.
Saves you Money
Thanks to the depreciation it went through, it’s also going to save you a lot of money. With some higher-end luxury cars, it’s possible to save up to $20,000 even after they are one year old. While it’s not as drastic when it comes to the average sedan or SUV, the concept remains the same. After that 20% hit in value following the first year on the road, you’re getting a one-year old vehicle for 80% of the original price. Go for an older model, and you’ll save even more money on your purchase.
Just as Reliable
During the early 1980s, buying a used car was considered unwise. Simply because they were more primitive, and didn’t last nearly as long as those produced today. On top of that, they tended to break a lot easier. So, why buy an older clunker when you could get a new car that was less likely to malfunction? While that last question still has some merit, the rest of it is no longer true. Current used cars will last just as long as a new car, and are just as reliable and durable, if you bought one that’s been taken care of properly. You might not have the updated JBL sound system or the latest and greatest touchscreen, but what you will get is a vehicle that’s just as reliable for a much lower price.
More Bang for your Buck
Remember how I mentioned a used car provides better value if you wish to sell it later down the road? Well, you can also get more bang for your buck. Why buy a new 2016 vehicle to the tune of $34,000 (on average) when you can get a higher-end luxury vehicle that’s only one or two years old for the same price or less? Or maybe a sports car? Or even a higher trim level of the same model that’s loaded with all the features, for the same price that the 2016 base trim would cost? Point is, if you shop smart, you’ll be getting much more bang for your buck.
It’s quite apparent why you should buy a used car. If you’re still not convinced, consider that you could also go online and find a decent used car for $2,500-$3,000 and have it last you for at least three or four years. That means no monthly vehicle payments, and all you need to worry about is paying for your insurance. Finding a good used car might take a little more effort, but it’s well worth it.