Buzz
If you're struggling with how to balance housing, healthcare, and other essential expenses, you'll likely appreciate financial strategies that help you save money. Here’s a game-changing tip: Never, ever buy a new car.
This isn't just because new cars have become outrageously expensive, with average prices now reaching up to $50,000, and only 8% of new cars on the market priced under $30,000. Purchasing a new car is a poor financial choice in every regard. You'll almost always fare better buying a used car that's relatively new, and you'll do even better if you can manage without a car entirely. Here’s why.
The financial burden and depreciation of new car purchases
To begin with, a new car will depreciate by nearly a third of its value in just the first year, regardless of how well you care for it. You can perform regular oil changes, spend hours polishing it, and still see it drop in value by 20-30% within twelve months. For example, if you bought a new car for $50,000 today, it would only be worth about $35,000 by next year.
And the depreciation doesn't stop there. After the first year, your car will continue to lose around 15-18% of its value annually, leading to a total loss of about 60% over five years. So if you purchase a 2024 model for $50k this year, by 2029 it will be worth only $20,000. If someone advised you to invest in anything else that guarantees a 60% loss in value, you would likely refuse.
Next, if you're like most people, you're likely financing that car, which means you're not only overpaying for the car initially due to its rapid depreciation, but also paying interest on the loan. Depending on your credit score and loan terms, interest rates can be as high as 20%. Additionally, this monthly payment doesn't account for insurance, maintenance, or fuel expenses.
Ways to minimize vehicle depreciation
If you can't do without a car, buying a used one is a much smarter choice. Here's the key reason: By purchasing a five-year-old car, you avoid the steep depreciation. While the vehicle will still lose value over time, the loss won’t be as drastic. That $50k car you buy for $20k when it's five years old will likely be worth about $10k after another five years, and only about $6k a decade after its purchase.
While the cost of maintaining any car increases as it ages, this also applies to new cars. The average driver covers about 13,500 miles annually, so your five-year-old used car probably has around 70,000 miles and likely cost about $7,000 in maintenance during that period. Maintaining the car for the next 5 years and 70,000 miles will average around $10,000. It’s more expensive, sure—and these numbers are based on many assumptions, so your results may differ—but it doesn’t outweigh the higher overall cost of owning a new car and its quicker depreciation. Plus, used cars tend to be less expensive to insure (because they’re worth less).
Naturally, when opting for an older used car, you make some sacrifices. It might lack the latest tech features, and you’ll have to deal with the remnants left by previous owners, like stubborn bumper stickers or the lingering scent of a heavy smoker. Additionally, there’s the reassuring psychological comfort of having a brand-new car, which you expect to be trouble-free and reliable for years to come.
The key point is clear: New cars don’t justify the extra cost. If you have extra cash lying around, feel free to indulge in a new car. However, if you’re keeping an eye on your finances, there’s little reason to splurge on a brand-new vehicle. Save money and opt for something gently used instead.
