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