New cars have a dirty little secret: depreciation.
Sure, other things depreciate over time, but nothing loses value quite like a new car.
A car will lose an average of 20 percent of its value as soon as you purchase it. That means that a $30,000 car loses $6,000 instantly as you drive it off the lot.
After the first year, it’s lost around 30 percent of value, thanks to mileage and wear and tear. And it keeps depreciating after that, too.
Why does that matter? Because when you sell that car three years later for half of what you paid for it, the car has now cost you $15,000 in depreciation over only a few years. Have you even finished paying off the loan yet?
In comparison, a used car doesn’t depreciate as rapidly. Used cars tend to hold their vale better.
Let’s say you purchase that same vehicle, but it’s already three years old. After purchasing it for $15,000, you could easily turn around and sell it for $10,000 after driving it for three years.
Those three years of driving the car only cost you $5,000 instead of $15,000.
Aside from depreciation, a brand-new car comes with other costs, too.
For instance, when a vehicle costs more, it costs more to insure it.
On top of that, lenders will require full coverage insurance on vehicles they’ve financed, which means you can’t drop comprehensive to save money. When you sign your loan papers, you agree to protect the vehicle against physical damage by purchasing both comprehensive and collision.
Did you know that your registry renewals will be more expensive on a new vehicle, too? The registration fee includes taxes in many states, kind of like how you pay property taxes on a house. As new cars are worth more than old ones, the taxes are higher.
Of course, if you really have your heart set on purchasing a brand-new car, you can go ahead and do it. It really depends on if you feel like driving a new car is worth the extra money that depreciation can cost you.
But if saving money is key to your automotive budget, buying a used car is a great way to save some cash–or even be able to afford a luxury vehicle you may not have otherwise been able to purchase.