If you’ve ever been car shopping, you probably know the feel of sitting in a nice new vehicle. It drives nice, it looks nice, it even smells nice. You can picture yourself taking it home and showing all your friends your shiny new toy. Well guess what?! This is the experience every car salesman wants you to have. It may seem so easy to make this experience a reality with low financing and $0 down, but that would be a mistake. Before making the choice to buy that new car, look at these 5 reasons why buying used is a better financial choice.
High Insurance Costs
First, a new car that is financed will need full coverage. This will be much more expensive than a used car that is paid off, and therefore does not need full coverage. Second, a new car has expensive parts and thus will be expensive to fix. For this reason the insurance on a new car will be more than on a car that is a couple years old.
According to Meg Stefanac at TrustedChoice.com, “The moment you drive your new car off the lot, it will depreciate by as much as 11 percent of its value.” It will also depreciate as much as 19% by the end of the first year. With a 5 year loan, and low interest rate, it will take you over 2 years to pay off the amount in which the new car has depreciated alone. This means that if the car is totaled in those first 2 years, you will owe more money than the insurance company will pay you. Ouch!
Changing Gas Prices
With gas prices low, many people are trading in their high MPG cars for new trucks with low MPG. This tactic is very short sighted as gas prices change all the time and will rise again. According to Gas Buddy, a gas price app, the current national gas price average is around $2.00/gallon, down from around $4.00/gallon just 4 years ago. It is likely that we may be back at that high within the next 4 years, and while you are still making payments on your new, low MPG car. Had you kept the old vehicle you wouldn’t have to high gas price and car payment.
Old Is Not So Old Anymore
It used to be that cars would stop working around 100k miles, which is generally only 8-10 years of driving for most people. This used to be a good reason to buy a new car. It would be inconvenient to have to replace your car every 5 years if you bought used. Today, it is not uncommon to have car continue kicking at 150k-200k miles. This makes it worth it to buy a car that is a couple years old, and may have up to 15 more good driving years to go.
Your Needs Change
Even though today it may make sense to buy a new Mustang, when you’re single with no kids, things change, and sometimes when you least expect them to. You may need to trade that Mustang in for a spacious SUV in the near future. If you buy that new car, selling it early is only going to exacerbate the costs previously discussed.
For most people, it does not make sense to ever buy a brand new car. Used cars can be just as nice, but a lot less expensive. Fight the urge to buy new and use that money to fuel your emergency fund.
Have you purchased a new vehicle to then regret the decision? Tell us about it in the comments!