Buying New vs. Used
New Car v Old Car
Buying a car presents you with tons of choices to make. You need to decide on the model and make the car you want, and just as importantly, you need to decide if you want a new or used car.
This decision is an important one because it can determine what your finances will look like later on. Take a look at these statistics. An average person buys about thirteen cars in his lifetime. If new cars cost $30000 and he buys used cars instead of new cars all through, he would be saving about $130,000.
$130000 is a lot of money; from these statistics, this is a big decision with far-reaching effects on your finances. You must consider deeply and carefully the advantages of purchasing used cars over new cars, calculate how much you would be saving and decide on the best course of action for yourself.
The first and most important advantage of buying a used car instead of a new car is that someone else gets to take the car’s depreciation hit. Depreciation is the real money saver when it comes to car finance.
Have you ever heard the saying that a car has lost about 20% of its value the moment you buy it? This means that if you buy a car that costs $50000, you would have lost $10000 as soon as you drive it out of the dealership. When you’ve used it for a year, the combination of wear and rear and mileage would have brought it 30%, which is $15000.
If you’re selling it three years later, you can calculate how much value it would have lost and how much money you would have lost. The worst part is you don’t feel the loss of depreciation until you are ready to sell off years later.
For used cars, since depreciation occurs more vibrantly in the first three years of usage, the previous owner would have borne most of the grunt of depreciation.
The second advantage of buying used cars is that after a few years, you might be able to sell off the car at nearly the same price that you bought years ago. Some good financing options are still available to you from your credit union or local banks. Since you are not losing any money on depreciation, you might be able to come out without a crippling interest loan like you would have had to take out to get a new car.
Finally, the third advantage of purchasing a used car is that you may be able to secure cheaper insurance rates on the used car, depending on its model. This is unlike new cars that come with heavy insurance rates. At the end of the day, the choice is yours to determine the best option for you. If the depreciation cost on the new car is worth it to you, go ahead. A good test to determine if you can truly afford a new car is if you would be able to pay it off by the third year, the years where depreciation takes place the most. If you can’t do that, new cars just might not be the best option for you.