There is something special about getting a new ride. Maybe it’s that “new car smell”, or perhaps the confidence and pride you gain while driving around in a fresh whip, showing it off to all your friends and family. People get attached to their cars, just like homes, and it’s a fairly large and exciting life event when you are ready for an upgrade.
Recent studies suggest people in the US are starting to buy less cars in their lifetime. There are a lot of factors supporting this, such as increased vehicle reliability, and also for financial reasons like avoiding additional debt and continued vehicle payments. This is especially true for millenials who struggle post graduation with digging out of student loan debt. This means that it’s even more important to make the right decision when the time comes. Regardless of frequency, for most people there will come a time when you need to get a new vehicle, but when I say new I don’t necessarily mean “new new”. There are a ton of benefits associated with buying a new “used car” that may make it more attractive when you’re ready for that upgrade (for all generations, not just millennials).
MSRP: You don’t have to settle
Have you always dreamed about owning an Audi A4, but can only afford a VW Jetta? Many people choose to wait for cars to come off a two to three year lease, and circle back to the dealer when they go back into inventory. A new base Audi sedan can cost around $45,000 which is a lot of money, but if you wait 3 years, that same car with low miles will cost around 45% of the original purchase price. Let someone else absorb heavy depreciation, and pick up your dream car at an amazing value. Often times you can get them with less than 36K miles on them and newer body styles; it’s essentially like buying a new car at half the price. Buying a car that is a few years old is generally a better investment and you don’t have to save up or settle for a brand or model you aren’t in love with.
When you buy a new vehicle, the industry standard for a warranty is 3 years or 36k miles for coverage. This is good, but problems don’t usually start popping up until you get into the higher mileage. Did you know that if you buy a certified pre-owned vehicle with low miles you will be covered for 6 years or 100k miles? Think about it it this way, if you buy a vehicle that is 2 years old with 20k miles, you will be covered for the next 80k miles! These warranties are generally built into the purchase price of a vehicle, so you don’t have to worry about any additional line item costs. I have seen cars go from $25,000 in value one day to $2500 in the blink of an eye; but with a long lasting warranty you can have peace of mind and protect your big investment. Having extended coverage is important and can save you from incurring large and unexpected bills.
One of the last things people think about when purchasing a new vehicle is the additional and ongoing costs such as insurance, because you’re usually focused on the shiny new car you are about to buy. On average, a used vehicle will cost you less per month than insuring a brand new car, because the value dropped during the initial depreciation period. Insurance impacts the overall cost to own and operate your ride, so it’s an added perk when you choose used over new. Make sure to contact a local agent prior to purchase so they can give you free policy estimates, and don’t be afraid to shop around; you would be surprised how much rates can vary between different providers locally.
Equity and Resale
Unless you’re buying a 1965 Shelby Mustang, a vehicle purchase isn’t really an investment, because the value is sure to go down in almost all situations. However, some cars depreciate faster than others and others will hold equity better. Not everyone realizes this, but in the first 3 years of vehicle ownership you suffer the biggest loss in terms of depreciation. On average cars depreciate at 5-9 thousand dollars in the first year alone! For instances, if you buy a new $23,000 VW Passat and put $5,000 down, after 12 months you will have negative equity, even after making payments on top of the down payment for a year. The reason for this is in the first year alone a VW passat depreciates by a whopping $8,000! When you buy a used car that is around 3 years old you are letting someone else take on that pesky depreciation. After a few years the depreciation schedule levels out to around $1400 per year which allows you to maintain the equity you initially put in, and are able to build more on top of it. I always recommend buying a used vehicle around 2-3 years old instead of new, especially if you think you won’t keep it for a minimum of 5-7 years.