This is a guest post from Ben at youngmoneyfinance.com. Ben runs the blog YoungMoney Finance and is on a mission to help other young professionals better manage their money. His mantra is all about making your money work for you, and not the other way around! Visit him at youngmoneyfinance.com
I know, I know. “I’m a young professional and am doing well for myself. My debts are low and my retirement account is high. I’ve got money in the bank, why can’t I buy a new car?” First of all, most of us reading this won’t be able to say all of that. But even if your finances are in great shape, I strongly advise against buying a new car. Let me tell you why.
1) Instant depreciation. This is probably my biggest reason not to buy a new car. As soon as you drive it off the lot, it loses value. Within the first year, you’ll lose 15-20% of the value of your previously brand new car. Don’t believe me? Go to cars.com and check it out. A 2013 brand new Ford Fusion SE would set me back $30k. A similar 2012 Ford Fusion SE would cost you $20k. No joke. By buying a ‘used’ car that is probably still in almost mint condition would save you $10k. That’s no brainer in my book.
2) You’ll probably have to take a loan out. If you truly can pay $30k cash, then perhaps buying new is okay. For that Ford Fusion I was looking at, I could probably get a car loan at 4% for 48 months. At the end of 48 months, I’ll have paid $32,500. That’s an extra $2,500 on top of an extra $14k for even buying the car new. Compared to the used car, you’re paying a lot more. Wow.
3) Insurance rates will be higher. A new car will always face higher premiums than a similar used car.
4) New cars are not all that much nicer. Are brand new cars compared to a two-year-old car really all that different? For some people, it is a big difference. Granted, it is hard to tell how well the previous owner took care of their car, and there is no guarantee that the car won’t be a dud. However, by being picky and having it checked out by a trusted mechanic, you’ll hopefully be able to pick a winner. Also, slightly used cars often still come with the manufacturer’s warranty.
Unless you tell me, “Ben, I enjoy throwing money away,” or “I don’t mind paying thousands of dollars more for something slightly better, or “I just want to support the auto industry,” then my advice is to stick with used cars.