Americans love their cars. And who wouldn’t! They offer so much freedom and comfort. As a car enthusiast and someone who used to work in the industry, I get asked a lot of questions about what car I should buy. Should I buy new or used? And what it all comes down to is how nice of a car do you want? And how much do you want to spend? If you are super rich and don’t have to worry about the money you can go pick any car you really want. My Guess is because you are reading the article you are like me and can only afford so much.
New vs. Used- The eternal question. Either choice is fine depending on how much money you want to spend. But here’s the trade-off.
A new car is great, smell good, and is the latest and greatest. However, It’s usually overpriced (salespeople got to eat) and once you drive it off the lot its value depreciates crazy fast. So if you just want to own something new this is a great option. But if you just want to drive a car and don’t really care about owning a car long term a lease is also a good way to go. Dealers Lease cars to pay for the quick depreciation. You’re eventually borrowing the car paying the depreciation and then returning it all of course with a fee, under mileage, No scratches, cheerios, or dog barf. So if you don’t drive too far every day, don’t have kids, and don’t want to commit to something long term. Leasing is a great option.
Now a used car does have a nice benefit. It’s quite a bit cheaper than a new car. There is some downside though. There’s no warranty so buyer beware. It could have poor work and parts put into it. And you don’t know. And sometimes you find a leftover sandwich under the seat. Mmmmhh. Now it’s very easy to find a $500 dollar car that barely runs needs a lot of work an may smell funny. But it’s just that. A $500 car. You’re not getting much because you’re not paying much. When I grew up I grew up very poor. I bought my first car for $500 cash and spent many hours fixing it. But I had no payments and saved a ton of money.
Now let’s do some math for those number savvy people out there. I had my car for 5 years Then sold it for $400. So I lost $100 in value over five years. But let’s not forget all the time it was in the shop and money I had to put into it to replace things. I probably put $3,000 in parts into the car. Let’s also add an extra $1000 for lost time I spent on the car. Coming to a total of $4,100. Spread that over 5 years and it comes to 68 Bucks a month. Not bad right.
As I got older I got busier and had to drive farther to my job. So I bought a newer Honda and only pay $110 a month for the loan. But I don’t have to spend extra time and money on maintenance. Now I’m still driving the car. But let’s say I get 5 years like my old car out of it. And sell it for $1,500 (I take really good care of my cars) My sunk cost in the car would be $5,500 and spread that over 5 years and it comes to $92 a month. If we account for the possibility of future maintenance it comes to around $100 a month. It’s 30 bucks more a month but the level of comfort and reliability is so much better.
Now if you can find the balance between the two points. You will be very happy with your car. All too often I see people buy these new cars and they post pictures of how awesome they look in the car. But ultimately they end up selling the car and regretting how much money was lost on the purchase. On the other end of the spectrum, I see people buy crappy cars that are always leaving them stranded on the side of the highway or in the shop. To truly appreciate the value and purchase of your car you need to find a balance. When you do that you will find financial success in regards to your transportation.
Comment below on what you thought of the article and the year and model of your first car.