Used cars vs new cars

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