Why You Should Never Buy a New Car
If you’re wondering how to afford housing, health care, and life’s necessities, you’ll probably be happy to hear about new financial tips to help you spend less and save more. So here’s one of the best money hacks you’ve ever heard: never, ever buy a new car .
This is true not only because new cars are getting incredibly expensive, with the average price reaching almost $50,000 , and only 8% of new cars on the market are under $30,000 . Buying a new car is just a terrible financial decision in every sense. You’ll almost always come out better by buying a relatively recent used car , and you’ll be even better off without a car at all if you can drive one. That’s why.
Depreciation and costs of buying a new car
First of all, a new car will lose almost a third of its value within the first year , no matter how well you take care of it. You can change the oil monthly and spend hours washing and waxing this baby and it will still cost 20-30% less after twelve months. This means that if you spent $50,000 on a new car today, it will cost around $35,000 by next year.
And the depreciation never ends. After the first year, your car will lose about 15-18% of its value annually, and the total depreciation will be about 60% after five years. So if you buy a 2024 model this year for $50K, by 2029 it will only cost $20K. If someone suggested that you invest in something else that is guaranteed to lose 60% of its value, you would leave.
Secondly, if you, like most people, borrow money to buy this car, then in addition to overpaying for the car, due to the almost instantaneous depreciation in the first place, you pay interest on servicing this loan. Depending on your credit score and loan structure, these interest rates can be as high as 20% . And this monthly payment does not include insurance, maintenance or fuel costs.
How to avoid car depreciation
If you cannot live without a car, you are better off buying a used car. There is one main reason for this: if you buy a five-year-old car, you avoid a sharp depreciation. While your car will still depreciate in value over time, it won’t be such a big loss. That $50,000 car that you buy for $20,000 when it’s five years old will be worth about $10,000 five years from now , and about $6,000 five years from now.
And while the maintenance costs of any car will increase with age , the same is true for new cars. Since the average motorist drives about 13,500 miles a year , your five-year-old used car will probably travel about 70,000 miles, and service during that time will likely cost about $7,000 on average. Maintaining this car for the next 5 years and 70,000 miles will cost you about $10,000 on average. More expensive, yes, and these are averages based on a whole range of assumptions, so your mileage can literally vary here, but not so expensive as to offset the higher cost of ownership and more depreciation of a new car. And a used car will also be cheaper to insure (because it literally costs less, naturally).
Of course, you give up something when you buy a used old car. It probably won’t have the latest tech and you’ll have to deal with the annoyances left behind by the owner, whether it’s the inability to remove bumper stickers or the baked smell of a dedicated vaper. And there’s also the simple psychological safety of having a brand new car that you can assume will be reliable and worry-free for years to come.
But the conclusion is simple: new cars don’t offer enough value for the extra money. If you have extra money, there is no reason not to splurge on a new car. But if you keep an eye on your budget, there is no good reason to splurge on a new car. Save some money and buy something used.