In collaboration with our friends at Nerdwallet.com
While buying new cars is enticing, taking a look at how much you could save over time buying a used car instead, is an important step. While buying a brand new car can be exciting, a used car can often offer just as much – except that new car smell. Let’s take a look.
The real money-saver in buying a used car is wrapped up in a sinister-sounding financial word: depreciation.
Once you fully understand how car depreciation can cost you, you’ll learn how to save boatloads of cash over your lifetime. You often hear that a car loses 20% of its value as soon as you buy it. Yes, in just one minute, a $30,000 car will lose $6,000 as you gleefully drive off. By the end of the first year, mileage and wear and tear could bring that to 30%, or $9,000. Why don’t you feel this big hit? Because it takes effect much later, when you sell or trade in your car.
It used to be common for people to put down used cars by saying that it was just a way to buy someone else’s problems. That’s not true anymore. Here are a few reasons to buy a used car :
Reliability: Cars have never been more dependable than they are today. It’s not uncommon for some cars to deliver more than 100,000 miles before needing major repairs.
Maintenance: All cars require regular maintenance such as oil changes, tire rotation, brake jobs. But you can drive today’s cars much farther in between these scheduled maintenance visits. Even tires and brake pads last much longer than before.
Lower car insurance rates: When a vehicle is worth less, it costs less to insure it when you’re buying collision and comprehensive coverage. You can also drop collision and comprehensive coverage, which pay for repairs to your car, and save even more.
Less stress: Got a ding in the door? Who cares? But when it’s the first dent in your new car, it’s a huge bummer.
While nearly everything about used cars costs less, buying a new car has its advantages. Let’s take a look:
New-car shopping is easier: All new cars are assumed to be perfect, so evaluating the condition isn’t a factor. No need to take it to a mechanic. Also, it’s easier to figure out what you should pay for a new car, even if the negotiation process is still a pain.
More financing options: New car loans typically have lower interest rates. This means you’ll likely pay thousands of dollars less than the frightening sticker price once you negotiate a final price and apply the incentives.
Advanced technology: New features for comfort, performance and safety are introduced in new cars every year.
Not all cars depreciate at the same rate. Some brands are known for holding their value exceptionally well. When you add in possible new-car incentives and low-interest financing, there are times when buying a new car doesn’t cost much more than buying a 1- or 2-year-old car.
You can find how much cars depreciate on several automotive websites, such as Kelley Blue Book’s 5-Year Cost to Own or Consumer Reports’ Cost of Vehicle Ownership.
Depreciation is a silent killer to your automotive budget. But by buying cars that hold their value, you can minimize the effects. If you’re still on the fence, use a car loan calculator to see how much less your monthly payment would be if you bought used instead of new.