Why You Shouldn’t Buy a New Car
The Surprising Downsides of Buying a Car
Introduction
I get that buying a new car is tempting. I have been tempted for a while to buy a new car. This post is written just as much for me as it is for you. New cars smell good, look good and make others think you’re successful. This post will discuss the financial, environmental, and practical reasons why buying a brand-new car isn’t the best idea. We will dive further into why financial security is better and how no one really cares what you drive.
Financial Depreciation
Rapid Depreciation:
The amount of depreciation varies based on the car, but on average cars lose 20% of their value in the first year. Every year after that they are losing 15-20% of their value. Over the first five years the car will lose nearly half their initial price. Kelly Blue Book has a great article on vehicle depreciation.
Better Value in Used Cars:
Buying a used car can save you significantly. The best savings can often occur if the car is five years old. If you are like me and driving a ten-year-old car, then a five-year-old car doesn’t sound all that bad. Kelly Blue Book also has a 5-Year Cost of Ownership list that details which cars have the best value when accounting for fuel, financing, insurance, etc.
Increased Insurance Costs
Higher Premiums:
New cars are expensive to repair and replace, therefore; you will be paying a higher insurance premium. If you didn’t put down a large down payment you may also have to get GAP insurance to cover the difference between the loan and the actual value in the case of a total loss.
Used Cars Lower Costs:
This is a lot less likely to happen when you purchase a used vehicle. Most of the depreciation should have already occurred. This offers immediate savings on your insurance. If your car is really old and you have enough money in savings to replace it you could switch your car to liability only (depending on where you live). This only protects you in the event you damage someone else’s vehicle so it is imperative that you have enough money saved to completely replace your vehicle.
Hidden Costs of Ownership
Taxes and Registration Fees:
New cars can come with higher registration fees. My state bases the amount on things like age, weight and type. A newer or bigger car would be the more expensive option. The most popular vehicle type right now is the suv. This is also one of the most expensive vehicles right now.
Higher Interest Rates for Financing:
Despite being offered lower interest rates, you may want to consider the cost of interest over the life of the loan. Best case scenario would be to buy a used car with cash. Second best would be to buy a used car with a loan. The interest rate may be higher, but the overall expense would be less over the life of the loan.
Limited Technology “Shelf Life”
Quickly Outdated Features:
New cars have a lot of features that my old Honda doesn’t. They have adaptive cruise control, lane departure warning and fancy infotainment systems. The only thing my Honda has that my first car didn’t is a backup camera (which is phenomenal by the way). But if I’m not content with my old vehicle I probably won’t be content with my new one either. Cars are quickly outdated by new tech.
Upgrading Older Cars:
Consider what you can do to make your old car better. Recently I ordered touch up paint that matched my car’s color. This made a huge difference in removing the scratches I had. I have some leather seat covers on my wishlist for Christmas. This is huge complaint for me. When we purchased my vehicle, we planned on adding leather after market. We did not and now my backseat is trashed thanks to my toddler and my seat is trashed thanks to my coffee habit.
Environmental Impact
Carbon Footprint of Manufacturing:
New cars are hard on the environment. Unpopular opinion here: manufacturing those batteries for vehicles are bad for the environment and are used through unethical labor. Also consider that some vehicles or parts are shipped from overseas. What is the cost you are willing to pay for an “environmentally friendly” car?
Used Cars are Eco-Friendly:
If I keep using my older car there is a reduced need for new manufacturing. Buying used cars (just like other items) is still an eco-conscious choice. Even if it isn’t an electric vehicle. Used cars are not sexy, but they are good for Mother Earth.
Modern Cars Are Built to Last
Improved Reliability:
If you buy the right vehicle then the car can last a long time. Cars can last a long time if properly maintained. One example of a long lasting vehicle is the Toyota 4Runner, which can last many hundred of thousands of miles. Just because you buy a vehicle that is five years old, doesn’t mean that you are buying a ticking time bomb.
Certified Pre-Owned (CPO) Programs:
My car was purchased through Honda’s Certified Pre-Owned program. It helps anxiety-ridden people like me have a peace of mind when purchasing a used car. The vehicle came with a warranty program and was already inspected by a mechanic. We have had very little problems with the vehicle.
Opportunity Cost of a New Car Purchase
Investment Alternatives:
Instead of a bank making money off of you through interest, consider how much money you could save. Or even better, if you invest that car payment a month imagine setting yourself up for financial security. This is a huge motivator for me.
The “Experience Economy”:
Instead of having a new car, another option is to spend on your priorities. Maybe you would like your child to attend private school, you value traveling or you are saving up for a nicer home. So little time is spent in your vehicle compared to other options. Consider your return on your “investment.”
Conclusion
While a new car may be calling your name, reconsider. There’s a lot to gain by making a frugal option and spending your money in different ways. Instead invest in your future and consider how much you could save or invest instead.
Like this post? Read my Step-by-Step Guide to Making a Budget.
