When buying a car are you better off with a new car, or a used car? Buying a car is a major purchase, and some people follow the philosophy that buying a new car is best because it will come with a warranty and any repairs that it needs will be covered during the first few years that you own it. On the surface that does make sense, as does leasing a car. You have a set amount of money per month that is the car payment and you always know how much you’ll be spending. You also have the status of a new car the first year, that famous new car smell, and even the envy of your friends.
The fallacy of that argument is in the fact that a car depreciates the minute you drive it off the dealer’s lot. That can be a very expensive five minutes. A twenty thousand dollar car as soon as it leaves the lot is immediately worth only eighteen thousand, and within a month worth only fifteen thousand. That puts many new car owners in the situation of being upside down. When you are upside down you owe more money on the car than the car is worth. This is especially true for those people who get long term financing of a new car, for instance up to six years. You can spend five of those years actually owing more money than the value of the vehicle.
A story is often told of Sam Walton, the founder of the Wal-Mart stores. Sam drove a ten year old pickup truck to work most of his life. He was the richest man in American and he chose to drive an old vehicle because the status didn’t matter to him and he was wise with his money. In fact, many of the thousands of millionaires in America drive vehicles that are two to four years old. The reason? When you buy a two, three or four year old car someone else has taken the hit on the depreciation. You spend much less money and get a much better value in a vehicle. Of course you won’t be able to go into the showroom and pick out the car you want, but if you are not that picky there are many nice pre owned cars out there for good prices. In fact, you can save even more money by checking the classified ads and buying a used car from an individual rather than a car lot. If you miss the new car smell, stop by an auto supply store and buy that smell in a spray can. Or try pina colada for a change.
Unless a person is buying a classic sports car, or a very old classic to restore, buying a car is never a good investment. It is a tool. A means of transportation. You want it to be dependable and to run economically, but if you think of a new car as an investment you are sorely mistaken. A house is an investment. A house does not depreciate by several thousand dollars as soon as you buy it. People who are careful with their money will always go the used car route.