A new car is a popular item on many people’s wish lists. Not just a new-to-you car, but a brand new, first-time-owner car that you can personalize to your heart’s content. While the attraction of a new car is alluring, we’re here to provide you some crucial advice.
DON’T EVEN THINK ABOUT IT!
If you genuinely want to have Money Earned through Money Saved, you should never, ever, ever buy a new car. Purchasing a new vehicle is, in fact, one of the very WORST financial decisions one can make. What’s the big deal, you might ask? Why not, if I can “afford” it? On the surface, purchasing a new automobile may not appear to be a significant financial commitment. But we can assure you that it is. Let’s look at why purchasing a new car is a terrible idea and how buying a good used car may save you thousands of dollars.
The cost of a new car has risen faster than the cost of living
Purchasing a new car is a status symbol. One that is very visible and viewed by thousands of people every day. Cars have long been a prestige symbol. While new vehicles have long been a component of the American ideal, today’s new cars considerably exceed our parents’ and grandparents’ American budgets.
Let’s analyze just how bad of an investment financing a new car can be with a simple thought experiment
For $25,000, you can have a brand new mid-size vehicle. You don’t have enough money to buy the automobile altogether, so you opt to get a loan instead. Let’s assume you have good credit and obtain a 3.5 percent interest rate with a $3000 down payment and a $1,000 trade-in of your 1998 Subaru Forester with 250,000 miles and a head gasket that won’t make it to 251.
Last year, the average term of a car loan was slightly over 60 months, but we’ll round up to 60 for simplicity’s sake. Let’s also leave taxes out of the equation because they differ by state. Before taxes, you’d be paying $382.02 a month. It’s a lovely, affordable amount, and it’s why people get trapped in these predatory loans in the first place. If you multiply that number by 60 months, you’ll end up paying $26,921.20.
Let’s throw in a terrible word that new vehicle salesmen don’t want you to think about: depreciation. The truth is that a new automobile loses 22% of its value in the first year. At the whole 5-year period? On average, you’ll lose 55% of your money. That implies that on a good day, that $25,000 car you spent $27,000 for, plus tax and duties, is worth around $11,500.
What this implies is that around halfway through your loan, you’re effectively taking $400, wrapping it twice tightly in a quilted paper towel, and flushing it down the toilet – every month for the next two and a half years. That money will never, ever be seen again.
You do not actually own the car
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The notion of ownership is intriguing. It essentially implies that anything becomes your property since you lawfully obtained it. The problem is that when you agree to loan conditions with a vehicle dealer or bank, you’re paying them for the right of driving their automobile until the loan is clear.
Check the car’s title, which should include the bank’s name in black and white characters in the “Lienholder” section. If you lose your job, have a financial emergency, or for any other reason fall behind on your payments, the bank or dealership will repossess your car without your permission, using the same tactics as car thieves, and they are fully within the law to do sell it off t higher prices.
Car Dealer Myths
With all of the dealer incentives, car salespeople have it pretty good. Car salespeople, on the other hand, seldom buy new cars. In fact, car dealers are always on the lookout for exceptional low-mileage trade-ins that have already taken the new car hit. Plus, they have technicians and service personnel at their fingertips. Car buyers may spot a good deal on a secondhand car and take advantage of it.
New Car = Expensive Insurance
Not only are you getting ripped off with more money, more interest, and a lengthier loan, but you’ll also be paying more for car insurance. Because new automobiles are worth more than used cars, insurance premiums are frequently higher.
Furthermore, if you buy a new car, you should choose gap coverage to guarantee you don’t end up with a large debt if your car is totaled (gap coverage pays the difference between the car’s value and the amount still owing on the loan), which will raise your premium. While many factors influence how much you spend on insurance, it is critical to consider the monthly expense.
Your warranty will most likely expire before the end of your loan payment schedule
The new car scent fades after two trips, with the typical warranty barely edging it out in terms of durability. The typical term of a car loan is about 5 years or 60 months. A new car’s typical warranty is three years or 36 months.
Take a wild guess who has to take their loud-ass nightmare to the dealer and yell the problem to the service tech over the ear-piercing wail of a vehicle alarm if some electrical component fails on their car and they’re on month 37 of ownership. They still have the privileged pleasure of paying for everything out of pocket. Also, with two years of payments remaining, which is money that may be no longer there.
Used cars offer infinitely better value
When it comes to vehicles, buying new is not the way to go. Because of the increasing prices of new automobiles and the decreased rate of pay growth, purchasing a new car is no longer a viable option.
Why spend hundreds of dollars on something that will rapidly lose its worth and appeal? In all, the pleasure of the new will wear off after a few months, and your vehicle will become just another used automobile. The payments are the only thing that won’t go away! On the other side, you can buy the same product for a lot less money if you wait a few years.
There is no reason why you should lose a significant amount of money when purchasing a car. It is a lifestyle decision. It is not something that might potentially bring your lifestyle to a halt in enjoying your life the way you want. A car should not be a barrier to financial success; rather, it should be the mode of transportation that takes you there.