While buying new cars is enticing, you should take a cold, hard look at how much you could save over time by buying used cars instead.
The average person owns 13 cars in a lifetime, each costing an average of $30,000, according to a report by the National Automobile Dealers Association. If each of those cars was 3 years old, instead of new, you could save nearly $130,000 during your lifetime.
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 sucks money out of your wallet, 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.
Take a look at two similar cars, one new and one used:New-car depreciation: You buy the car for $30,000 and sell it three years later for $15,000. The car has cost you $15,000 in depreciation.
Used-car depreciation: Now let’s say you buy the same car, but it’s 3 years old when you buy it. You could buy the car for $15,000. Three years later you could sell it for $10,000. So the used car depreciation cost you only $5,000.
Now, if you’re paying attention, you would quickly say, “But driving a brand new car is much better!” You’re absolutely right. So, if driving a new car is worth an extra $10,000 to you, go for it. But don’t say we didn’t warn you.
Forget the old used-car stigmasIt 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 two updates on old knocks against used cars of recent vintage.
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.
So it’s pretty clear that buying a used car is much cheaper and that cars, in general, are more dependable. But take a look at these other advantages:
- 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.
- Registry renewals are cheaper: The cost of registering a used car goes down every year.
- Move up to a luxury car: Because you can save 30% or more, you can shop in a higher class of cars.
- 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.
Since the value of the vehicle will be lower, you’ll also save on your sales tax and insurance premiums. If you are financing, you’ll probably save in total interest payments, as the loan amount that you’re paying interest on will be lower, even if the interest rate is a bit higher.
By looking at the research and rankings for the car you are considering, you’ll know where there are potential problems, and you can avoid them. By the time a new model has been on the market for a couple of years, there will be some good predicted reliability information available that you can use to compare models.
The greatest advantage of going used is that the original owner will have absorbed the costly depreciation that occurs in the first few years of ownership. Their pain is your gain, however, as it will allow you to save thousands or tens of thousands of dollars on the cost of your car. You can either budget much less for your vehicle purchase or take a new-car-sized budget and buy a bigger or fancier model than you would otherwise be able to. And features such as navigation and leather seats don’t add as much to the price of a used vehicle as they do to the price of a new one.