We've posted a story before by our financial planner Sophia saying she would never buy a new car at all. But our friends at GoBankingRates.com think you shouldn't buy one if specifically if you're under 25. Find out why:
So you just graduated from college and you’ve landed your first job. Congratulations! What’s up next? You may be wondering, “Should I buy a new car?”
For many people a car may be essential for getting around in the city, but a new car isn’t. Sorry to burst your dreams, but buying new just doesn’t stand up to financial scrutiny. In fact, the benefits of buying a used car far outweigh buying new.
Here are a few reasons to avoid buying a new car in lieu of a used car purchase.
1. It’s a Luxury
A new car is nothing more than a luxury. Yes, you heard that right. By definition, a luxury is something that isn’t strictly necessary. It’s natural to be attracted to a brand-new car, but the reality is it won’t get you to work any faster or better than a used one. Plus, unless you have no student loan debt left over after college and have a big salary, it’s a luxury that isn’t affordable for younger adults—even those who can technically pay for it.
2. You Get Less Car for Your Money
If you’re looking to buy a car, you probably have a budget in mind. One of the benefits of buying a used car is that you’ll get a lot more car for your money.
For example, you can choose a new 2013 Ford Fiesta, an economy class car with a retail price of about $15,000; or, you can spend that $15,000 on a used car. $15,000 can get you a fully equipped 2010 Ford Fusion with only 30,000 miles on the odometer. The Fusion is a highly rated car, with high-end fit and finish, and was voted one of the most reliable cars of 2010. Brand new, it was nearly $30,000.
3. You Take the Depreciation Hit
When you’re living on a tight budget, great car buying advice dictates that value should be your main objective. That’s why a new car—as opposed to a used car—just doesn’t add up.
According to Consumer Reports, a car tends to lose about 45% of its value over the first four years of ownership. In other words, new car buyers are paying a huge premium simply because the car is newer—not necessarily better—than a car that’s a year or two older. That’s just bad value.
Plus, this kind of depreciation can also put car owners upside down on their auto loan. An upside down auto loan can lead to problems if the car gets totaled without GAP coverage, because the insurance company will reimburse you for only the car’s market worth, regardless of what you still owe on the loan.
4. You Pay More Interest
One trap many car buyers fall into is mistaking affordability with being able to make the payments. When you set out to buy a car, the idea isn’t to get the most expensive car you can make payments on, but to get the best car you can afford to pay for quickly—and at least partly in cash.
A four-year loan at 4% will add about $1,200 to the cost of a car. That means that a $15,000 car actually ends up costing $16,200—8% more than the sticker price. This is especially important if you’re a young buyer, as you may not have enough of a credit history to get the best auto loan rates anyway.
5. Your Car Insurance May be Higher
You’ll typically pay more insurance for a newer car than a used one. The equation is simple: The more a car is worth the more insurance you’ll pay.
Buy a used car outright and it may even pay to skip collision insurance altogether, which can mean hundreds in savings each year. A new car is also likely to hit younger drivers with a shorter driving history harder, due to higher insurance rates.
6. Used Cars are Reliable
One issue that often concerns those who are seeking a new car is reliability. And while it’s true that a brand new car of any make or model is unlikely to break down in its first few years, it’s important that buyers choose a car with a high reliability rating, rather than just relying on a new car warranty.
Opt for a used car that’s rated as highly reliable, and invest some money to maintain it properly. According to Consumer Reports, when properly maintained, today’s vehicles should easily go well past 100,000 miles, and many could reach 200,000 miles without a major breakdown. When you consider how much you can save by buying used, you’ll come out ahead even if you have to make some repairs down the road.
Should I Buy a New Car?
Used cars get a bad rap, but they’re often the best value you can find in the automotive market. A lower price and decreased ownership expenses are just a few benefits of buying a used car. If you go with a late-model used car, you’ll get the look and feel of a new car for a whole lot less.
When you’re just getting started in your career and in life, that’s worth a lot. So take this bit of car buying advice: Choose a first car that will help you move forward, both literally and financially, not drag you down into auto loan debt.