New Vs Used Which Car Is Right For You
Date Added: November 26, 2007 09:53:49 PM
Buying a New Car
Sure, buying a new car is fun. What is not to like? You get the latest version of that shiny new car and it has a cool “new car” smell as an added bonus. But drive it off the lot and it is already worth less than you paid for it. The value will drop dramatically in most cases. Up to 25% the first year and in five years the car will be worth about 70% of what you paid for it new.
Purchasing with a loan? This means you will be upside down, meaning the car is worth less than the loan against it. You need to ask yourself if you really want to by making $300 a month payments on a car that might be worth less than half what you paid for it in 5 years.
Not every car depreciates in value at the same rate. Popular cars like the Mini Cooper will depreciate at a rate slower than a common Ford Taurus. Researching depreciation rates on cars you are interested in is simple with a Kelley Blue Book.
Of course there are also benefits to purchasing new. You can typically get the better interest rates when financing a new car. Though the interest rate savings do not compare to the savings you realize with a used car unless you qualify for a 0% financing deal.
Buying a Used Car
When buying a used car that may only be a year old you can avoid that dramatic first year’s depreciation in the value. When you compare the value of a new 2008 Ford Taurus SEL at $23,995 with that of a 2007 at $14,615 the savings is substantial. You could save over $9,000 by purchasing last year’s model.
Another option is to use that savings to upgrade to a more expensive car with additional options. For example try getting a 2 year old BMW for the price of a brand new Honda. You begin to see that the scenarios start to open up. Many time these newer-used cars come with warranties or with a pre-owned certification.
With programs that provide a vehicle history report, the ability to research fair value online and online pricing services makes buying a used car much less risky than it used to be.
Leasing a Car
These programs are really nothing more than renting a car for the next two to five years. Your payments are determined by the amount of depreciation the car you choose will suffer over the time that you lease it. When your term expires you return the auto and must pay for any mileage driven in excess of what your lease specified and any damages to the car. Other options include the ability to purchase the car at the end of the lease.
With leasing you will pay less on the front end, but more over time while taking on additional financial risk. Leasing may be the right option for a person who constantly needs to have the latest models, but in most cases buying used is the best option followed by buying new and lastly leasing a car.
