There are many different opinions among personal finance experts about whether it’s better to buy a new or used car. Some experts are adament that used cars are better because you let someone else absorb the depreciation of the value of the vehicle. However, others are champions for buying new cars since they come straight from the factory and should be in excellent working condition with warranties.
That said, the decision is different for everyone, and it really depends on your current financial status, how you will use the vehicle, whether or not you will use a car loan, and how long you plan on keeping your car.
1. Think About Yearly Mileage
It’s important to know how many miles you plan to drive your car each year. For example, if you are purchasing a car and your job requires you to be on the road constantly, it makes more sense to buy a used vehicle. The reason is that putting excessive miles on a car will cause it to depreciate faster. So, if you buy a brand new car, the value of that car will drop substantially as the miles go up. If you buy a used car, it has already depreciated some in value and makes more sense for someone who is planning on driving a high mileage amount.
2. Think About the Extra Costs
Purchasing a car is more than just thinking about monthly payments. You also have to consider the cost of gas, maintenance, and insurance. Insurance costs are typically going to be higher on a new car because the vehicle is worth more. Usually, the older your car is and the higher the miles go, the less your insurance will cost. Ultimately, according to an AAA 2015 study, “the annual cost to own and operate a vehicle has fallen to $8,698,” which is still a significant amount to consider.
3. Think About How Long You Will Keep the Car
Many people buy brand new cars because they plan on driving their cars for 10+ years, and they repeat the process every time they get a new car decade after decade. However, if you only want to drive a new car for a few years before getting another one, you have to think about the value of the car. You don’t want to go underwater on your car, meaning you owe more on your car than it’s worth. So, if you only want to drive a car for a short amount of time, it’s best to try to get the best price on a used vehicle so you don’t have to sell it at a huge loss.
4. Think About if You Can Pay for a Car in Cash
Car dealerships always try to get you to focus on securing a monthly payment you can afford when it comes to buying a car, even if it means extending the life of your car loan by several years. This is dangerous because, as previously mentioned, owning a car is much more than just worrying about your monthly payments. You also have to maintain it, fill it up with gas, keep it registered, and keep it insured. That’s why it’s good to consider the possibility of paying for a car in cash. It’s not incredibly common in our generation, but many people enjoy the luxury of not having a car payment at all. If you want to purchase a car in cash, it’s typically better to look for a used car since they are more affordable than a brand new car.
5. Think About Your Overall Financial Health
Ultimately, the best tip when it comes to deciding between a new or used car is to think about your overall financial health. If you have no debt, a high net worth, and an excellent credit score, then buying a new car might be right for you. With a high credit score, you will likely be able to secure a very low interest rate, which is attractive to many car buyers. However, if you are living paycheck to paycheck and are struggling to pay your monthly bills, now might not be the right time to buy a brand new car. It might be better to find a car that can get you to and from work at an affordable price. Remember, cars are not a permanent choice. You can always sell your car or buy a different one down the road, even if you just bought a brand new car and realized you can’t afford it. The point is to think carefully about the type of car you want and how you want to buy it before going to the dealership. Then, and only then, will you be able to set yourself up for financial success now and whenever you purchase cars in the future.
Catherine Alford is the go-to personal finance expert for educated, aspirational moms who want to recapture their life passions, earn more, and take on a more active financial role in their families. Named the Best Contributor for Personal Finance in 2014, she has written for Yahoo Finance, U.S. News and World Report, The Huffington Post, Kiplinger, Investopedia, Business Insider and many more. Catherine is the founder of personal finance blog BudgetBlonde.com and is the innovator of the web course, Get Paid to Write for Blogs.
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