Welcome to the 5th Smart Money Debate at ReadyForZero! To see the other side of this debate, read Miranda’s post: Why You Should Buy a New Car (Not Used). And then let us know which argument was more convincing!
Greg Johnson is a husband, father, and all-around swell guy. He is the co-founder of Club Thrifty where he writes about budgeting, debt, and all things personal finance. You can follow him on Twitter @ClubThrifty.
Buying new things is fun. I love unwrapping the shiny packaging, opening up the box, and smelling the factory made scent of something brand new. There is nothing quite like holding something in your hands that nobody else has ever used. It makes you feel… well… special.
You know what makes me feel even more special than buying something brand new? Saving money. That is why almost everything I purchase is used. Don’t get me wrong – I’m not one to purchase a used pair of Hanes. However, with most items, you can find great deals if you are willing to buy used. This is especially true when it comes to major purchases like cars.
While I wouldn’t recommend buying any old lemon, buying used cars is the only thing that makes sense financially. Our family has purchased new before, and we consider it to be one of the biggest financial mistakes we have ever made. Here is why we will never buy a new car again…and neither should you!
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Reason #1: New Cars Don’t Hold Their Value
We’ve all heard this before, but it bears repeating: a new car begins losing value the minute that you drive it off the lot. How much value you ask? According to Edmunds.com, a new car loses approximately 10% of its value as soon as you drive away. 10%!!!! Furthermore, it loses about 20% of its value after the first year, and 10% off the original purchase price per year after that. Depending on the make and model of your new car, you may have lost up to 80% of the value from the purchase price within 5 years!
Would you invest $25,000 in the stock market if you knew that you were going to lose $2,500 the moment you completed the transaction? Would you buy a house for $200,000 if you knew for a fact that it would only be worth $180,000 the minute you were handed the key…and $160,000 a year later?!? Of course you wouldn’t! No sane person would. Why would you do the same thing with a car? Let somebody take that huge financial hit by buying the new car. Then, you can take advantage of their silliness and buy the car used after they trade it in a few years later.
Reason #2: Used Cars are Cheaper
Since new cars are clearly a poor investment, it makes sense that the sticker price for used cars is far less expensive than the newer models. For instance, a brand new 2012 Toyota Prius is currently selling for around $28,500. Earlier this year, we were able to purchase a used 2009 Prius with under 25,000 miles for only $17,500. While red isn’t exactly my favorite color, I was happy to suffer through it in order to save $11,000.
Reason #3: Less Worry
You know the nervous feeling that you get when you buy something new? You become very protective of it. You don’t want anything to spill or scratch it. You’re so proud of it that you want it to stay looking all brand new and shiny for forever. That is why you bought the product new in the first place. Afterall, what good is a new car if it doesn’t actually look new.
I hate to tell you this, but eventually everything that is new is going to become blemished. When it does, you may be devastated – especially if you spent as much money on it as you would a car. Why not save yourself all of that worry, headache, and stress? Just buy your cars used. A nick, dent, or scratch doesn’t seem like such a big deal then.
Reason #4: Warranties are Available
People who tell you to buy a new car will tout the great warranties with which new cars come. Guess what. Most used cars will come with a warranty as well. In fact, the most important warranty – the manufacturer’s powertrain warranty – should still be in effect as long as the car has not exceeded its age or mileage limits. This warranty covers all of the big stuff that might break – like your engine or transmission. So, the warranty argument doesn’t really hold water. If the warranty is in effect, the argument that you are going to have to pay for more repairs to a used car than you would for a new car doesn’t really work either.
Reason #5: A New Car is a Bad Investment
Have I mentioned that a new car loses 10% of its value the moment you drive it off the lot…and 20% of its value over the first year alone?!? Oh, I did? Good. Well, this is so important that I’m mentioning it again. If that new car smell is still tempting you, go back and read Reason #1 to help snap you back into reality. Then, go out and buy a “New Car Smell” air freshener to put in your used car, and save yourself thousands of dollars.
As you can see, buying a new car is not the best decision for your finances. While that new car smell may make you feel like you are loaded, buying a new car is just another way of trying to look wealthy. It is a status symbol that savvy spenders can do without. If you’re in the market for a new car, do yourself a favor and buy a used one instead.
No matter what you decide, use ReadyForZero to track your debt payoff – it’s a free online tool that helps you stay motivated and pay off your debt in the fastest time frame possible.
To see the other side of this debate, read Miranda’s post: Why You Should Buy a New Car (Not Used). And then let us know which argument was more convincing!