| Why Buy New When a Used Car Will Do the | | | | During that high depreciation period, |
| Same Things for Less? | | | | the market value of the car could be |
| What do you really get from a new car? | | | | less than the balance due on the loan. |
| Well, there's that new car smell. (It | | | | In dealer's terms, you're upside down. |
| also comes in a can.) And the sticker in | | | | And you're vulnerable. Should your car |
| the window, which tells everyone you | | | | be involved in a serious accident, and |
| just bought a new car. (Are you really | | | | the insurance company decides it's a |
| that desperate for approval?) And don't | | | | “total loss” – it's been totaled |
| forget the fun of looking through the | | | | – your payout from insurance will be |
| driver's manual for the first time to | | | | less than what you owe on the loan. |
| learn about all those knobs and buttons. | | | | You'll get a check from your insurance |
| Monthly Payments | | | | company, but you'll still owe money out |
| You'll also get a monthly reminder of | | | | of pocket to pay off the car loan. Ouch. |
| your shiny, brand-new car: a payment | | | | Now, that's a worst-case scenario. But |
| notide for your car loan. The average | | | | keep in mind that no matter how good |
| price of a new car passed $30,000 last | | | | your experience is with a new car, it |
| year and is headed even higher. Do you | | | | will be expensive. There aren't just the |
| have $30,000 in cash to buy a new car? | | | | new-car payments with which to contend. |
| Or $20,000? Neither do I. Lower price is | | | | There's new-car auto insurance. Lots |
| the most important and most immediate | | | | more than insurance on a used car. That |
| benefit of buying a used car. | | | | renews every year. |
| There are plenty of others. | | | | Other New Car Expenses |
| Depreciation is Not Your Friend | | | | Some carmakers will void parts of the |
| New cars depreciate. Their price is | | | | warranty if you don't have your car |
| always going down. The moment you drive | | | | serviced at the dealership. There may |
| off the dealer's lot in that new car, it | | | | also be other dealer incentives you |
| probably loses 10 percent of its value. | | | | don't get if you haven't had the car |
| Some lost as much as as much as 20 | | | | serviced at the dealership. I made the |
| percent. That's an immediate loss of | | | | mistake of taking my car to the dealer |
| $6,000 – on average. Some cars will | | | | recently for service. (My daily driver |
| incur greater initial depreciation. The | | | | is a '98 Audi A4 1.8T Quattro.) The |
| personal finance experts say to buy | | | | labor rate was $114.98 an hour. That's |
| appreciating assets – like houses, | | | | right -- $114.98, not $115. Somehow that |
| whose long-term value is likely to | | | | made it even more galling. I mean, |
| increase – and lease depreciating | | | | that's more than I pay my therapist. |
| assets, like cars. | | | | (Who knows – maybe mechanics will soon |
| There's a hidden danger in all that | | | | start working 50-minute hours and taking |
| depreciation. Most new cars lose a lot | | | | the entire month off to go to the |
| of their value in the first year. Then, | | | | Hamptons.) |
| the depreciation curve flattens out, and | | | | The point is, you're locked into a |
| the car loses value more gradually. But | | | | high-cost structure with a new car. |
| you're paying off the balance of your | | | | Used cars are cheaper – and they're |
| car loan with the same monthly payment | | | | cheaper to maintain. That's especially |
| over the life of the loan. So the loan | | | | true if you buy a carefully researched, |
| balance decreases in a straight line. | | | | thoroughly inspected, ready-to-drive |
| The Danger of Being "Upside Down" | | | | used car. |