Why Buying a New Car Is not as Glamorous as it Seems from a Financial Perspective
There’s no denying that one’s dopamine levels rise exponentially the first time they buy a car. Perhaps it’s the fact that cars have always been associated with social status and wealth.
This can be the case especially when the new car bought is the latest brand, and comes endowed with high-end technology, has virtually no mileage; plus there’s also that smell of a new car that is intoxicatingly sweet.
However, these aren’t the only perks of having a new car. In fact, a new car means that you are less likely to have maintenance issues with the vehicle.
So you won’t have to worry about replacing parts such as the tires, the breaks, or undertaking some minor repairs for the next couple of years.
However, even if you run into some defect, quite a number of car manufacturers usually provide drivers with a three-year warranty, meaning that the parts can be repaired for free or even replaced.
Despite there being numerous advantages to purchasing a new car, it might not always be the smartest financial choice.
As a matter of fact, here are three reasons why you should think twice before heading down to the dealership and getting yourself a new set of wheels.
You’ll End up Forking More Cash
If you have 99 problems and money isn’t one of them, then it isn’t a big deal if you buy a new or used car. However, if you’re in the category of pinching your pennies, then a new car might just stretch your budget to unnecessary heights.
That being said, there’s a silver lining to all this. Buying a new car doesn’t always necessarily translate to complexity in your financial life. If you happen to have decent credit and can be awarded a new car loan with minimum hassle, then banks can be competing to get your signature to the best offer possible.
However, even with minimal auto financing rates when going for a new purchase, a new car is always more expensive than an older car of the same version. This is due to the higher sale price, as well as the fact that you will have to pay more in other areas.
For example, newer cars tend to have much higher insurance premiums than their contemporaries.
Greater Depreciation of Value Coupled with Negative Equity
Though it’s not fair, new cars are devalued much faster than old ones. What’s even more disturbing is that a new car can depreciate by a whopping 19% in the first year after its purchase!
So what does this mean for you and your new car?
In simple terms, when you buy a new car sans putting up a down payment, or if you are paying relatively low loan installments that are too little to factor in depreciation, you might just end up paying more for a car then its actual worth.
That being said, if you plan to keep your car for a long time, then negative equity isn’t such a bad thing. However, if you’re the type of person that changes cars after every three or four years, then negative equity can translate to losses worth thousands of dollars.
Buying a Used Car Means More Value for You Money
Since the price of a car depreciates exponentially in its first year, buying a new car technically means you get the same thing, but at a letter price. For example, if you buy a car that was roughly used for one year and it’s in its prime condition, it is more or less the same as purchasing a new car, with the only difference being the mileage.
Conclusively, buying a new car does come with its own perks in terms of durability. However, when analyzing the situation from a financial perspective, it would be wiser to purchase a used car not older than a year, which would translate to a cheaper price with essentially the same specs.
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