Financial column: Deciding between a new and used car
Published: Monday, October 14, 2013
Updated: Monday, October 14, 2013 23:10
After you graduate—or maybe even before—you may start to consider buying a new car. There are many advantages to buying new rather than used, but the majority of these reasons are based on superficial preferences rather than financial ease. To better understand these pros and cons, this week’s column will focus on helping you understand the benefits of both these decisions.
For me, the greatest advantage to a new car is simply the peace of mind that the vehicle will operate as expected. As common sense dictates, the older the car you purchase, the greater the chance of it breaking down. Cars do not age like wine, unfortunately, and the bottom line is that you will simply be safer in a newer car compared to a similar used model thanks to its prime mechanical condition, factory and manufacturer warranty and the inclusion of the latest safety features.
Convenience and luxury features, likewise, play a fairly significant role. This is all based on personal preference—how important is it that you have a AUX port for your iPod or phone rather than a CD (or tape) player? Does that in-dash GPS provide more benefit to you than a windshield-attachable GPS unit? Research the cost of these extras and decide whether or not they are worth the extra expense.
Of course, you may also buy a new car that is mostly stripped of these state-of-the-art features and still uses last-generation entertainment features with the benefit of lower prices. This area is, once again, a tremendous bonus for the new car. When shopping used, you are limited to the inventory that the dealers or private sellers in your area have on hand. If your number one choice is a black, ten-year-old car with less than 140,000 miles and all-wheel-drive, you may be surprised to find that the only choices within a reasonable travel distance is that Subaru with a smashed-in trunk or that Ford with alignment problems. What now? You settle for something less than desired, or go to the new car dealer and customize your vehicle to your preference.
The greatest benefit to buying used, on the other hand, is the cost. This is an important point both when thinking about the initial money you spend on it and the value of the vehicle after a couple years. Car site Edmunds.com has an interesting page about how quickly new cars lose value (Google “How Fast Does My New Car Lose Value”) that shows how over five years, the average car will be worth only 40 percent of what you initially paid for it. As the age of the car increases, however, this rate of depreciation slows significantly. Therefore, you will receive a higher percentage of money back when you sell that car that you had originally bought used.
It is up to you to decide whether or not the advantages of a new car are a worthy purchas,e and there truly are a lot of advantages. As a general rule of thumb, most experts suggest spending between 10-15 percent of your monthly income for car payments. Most car manufacturers provide online tools that help you determine how much you will need to pay monthly to finance any specific vehicle, down to any extra features you may have selected. So my best advice is to take advantage of these tools.
Figure out your monthly income, multiply it by 0.125 (the middle of that range) and compare it to the number given by the online calculator. If it is too much, save up more money for a down payment, select a cheaper vehicle or simply choose to buy used. Just remember that cars are not investments and will cost you money all the way down the line. You just have to figure out whether that luxury is worth the cost.