Why You Should NOT Buy a New Car

Smart Money Debate - Why You Should Not Buy a New Car

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.

Why You Should Not Buy a New CarBuying 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!

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!

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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

Why You Should Buy a Used Car

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!

Image 1 credit: NRMA New Cars; Image 2 credit: Accretion Disc

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  • addvodka

    Oh, gosh, the thought of dropping so much money on a car just for the “new” status makes me sick. I couldn’t imagine. I spent $12000 on my car used and in great condition and even THAT is a ton.

    • I hear you. Even used cars are expensive. We’ll never buy a new car again.

    • I know how you feel. We bought a minivan in great condition for $8500 and that killed me. LOL The part that made it all better was that it did not take a hit in value and it was paid for with cash. That’s a big fat win in our book.

      You know they have air fresheners for cars that smell like the new car smell for less than $5. I say buy used and add $5 to the bill for the air freshener. Haha!

      • Haha, that’s why I always love your comments, Brad! The $5 air freshener is a great example.

    • I feel the same way, to be honest! It’s especially good if you can buy a used car that will continue to be reliable for many years (and retain its value).

      • mad or naa

        To make dollars and sense a 33000 new car has a yearly insurance of 1400 and repairs and maint is about 8100=9500*20 year=190000+33000=223000. Divide that by 20 years=11120/12 months=929 a month. Pros less headache and compared to legnth of time about the same cost

        • Interesting numbers! Thanks for sharing. However, one thing to keep in mind is that most people don’t keep their cars for 20 years.

          • mad or naa

            They should though. Car is an appliances. The longer you keep it the more more use you get out of it. Most people cannot maint vehicle properly thinking they are save by stretching oil changes to save a buck. Thats biggest problem with current used cars market in my opinion. People make less or sometimes prioritize wrong. Also with car sharing service there less people taking pride in car. Example I got a mazda cx5 for 20000 my maint for first 10 years and minimum repair. Your better off renting or car sharing for financial security if worried about short term cost. Renting a car is about 7000 a year 51 weeks insurance and maint included. 0 repairs or omission or registations. No depression, interest, or lost opportunity.

    • abshih

      I don’t see anything wrong with buying a new car given that you have the money for it.

  • The only thing worse than buying a brand new car off the lot is going into debt to do it.

    Though I love Miranda, I agree with this article 100%. Great debate!

  • I think you’re right (buying used is better from a financial perspective), but it’s not as cut and dry as you make it out to be.

    1) if you’re financing the vehicle (the only way many people can purchase newer cars), then there will be a difference in the interest rate, and 2) in the aggregate, repairs/maintenance on a used car will be more expensive. The question is whether the difference in secondary costs offset the price/depreciation differences.

    • That’s a great point, Bryan. There can be higher costs associated with an older/used vehicle. It’s important to look at all factors before making a decision. Glad you liked the article, though!

      • mad or naa

        I would like your thoughts on this concept. People should buy a car as an investment. Not one that appriciates or increases in value. But one that allows them to minimize other expenses and allow more efficiency on their time. This help out a prudent person. One sizecant fit all. Someone who the doesnt have a car but is looking to purchase must consider 5 things. length of time, cost to maintain and repair, initial cost, misc cost, time saved, and level of knowledge on automobiles for quick fixes, the most important is the convenience that the enhancement brings. If a cheap used car can fit that description great, but if a new car outweigh perks of lower upfront cost of a used car then go new. For some people no car works best and renting or car sharing since it is a cheaper alternative if dont need on a daily basis. Cars shouldnt be looked as a necessity it should only be an option if there are no better option then it should be determed based on how much you can pay cash

        • smilingvulture

          keep it in a garage,dont drive it.look at it,take the bus

  • lunaclara

    But a car ISN’T an investment, unless you’re buying something vintage. Any car, new or used, will depreciate. That’s what they do. So, it doesn’t make sense to examine the purchase in terms of investment value. It does make sense to examine it in terms of reliability, fuel efficiency and maintenance costs. I’m in the market for a Prius, for various reasons. In Oregon, I can’t find a good specimen used that hasn’t had most or all of its powertrain warranty run through. And generally all other warranties are long gone. Even then they cost more than $16k.

    • You’re right that most cars will depreciate. So you certainly should factor in all those other costs you mentioned. Sounds like you have done plenty of research in order to make a good decision!

  • Jennie

    You forgot one major thing! A brand new bottom of the line car is the same price as a few year high end one! Why would you not go for that?!

    • That’s definitely true in some cases. It depends on your individual needs. I think this post argues that if you’re looking to save money, you can almost always find a reliable used car for a fraction of the cost of a new car (and with less risk of depreciation).

      • mad or naa

        Im probably late to comment but one major factor is how long you plan on keeping car. Lets say average usage 14k miles a year*20 years=280k. Consider a brand new car rxpensr ti be about 30k vs used car 11k. What you must look at is value, convience and time. If the used has 140k miles on it that means its will be drivable half as long.

        • That is a good point! Of course, it depends on whether or not you plan to keep the car until it’s got 280k miles on it! But these are good questions to be thinking of. Thanks for the comment.

  • johnran2

    I have had so much poor “luck” with used cars that I finally bought one new, and wow, the cost is worth it. A long warrenty, and the knowledge that I do not have to worry about it breaking down either way. A new car, like anything utilitarian, is not an investment. It is an expense, and some expenses are worth the value in time and peace of mind.

    • Glad to hear it worked out for you! It is definitely a personal choice and depends on what fits your situation the best.

      • one thing to consider

        New car 16000mile*17years=272000 most use cars can last half that time before they start becoming more than hastle then they are worth. So when comparing think 2 or 3 used cars with 50/50 it wasnt handle properly. If maint anew vehicle ythat gets old with you is worth it and the depreciation no long matter

        • That’s a good point. Although a lot of people who buy a new car don’t drive it for 17 years (and some people will drive a used car that long). Anyway, thanks for the comment!

  • Jim C.

    FYI I just leased a 2013 Chevy Cruz for $50 a month with a total out of pocket expense of $500 which includes taxes on $4800 in rebates. So the true monthly cost for this car is $70 a month! This is a 2 year lease with 10,000 miles per year! Although I agree with this article for the most part remember there are deals out there from time to time. Since this car will be under complete warranty for the entire lease there are no unexpected maintenance cost to factor in unlike a used car might have.

    • That’s an interesting option. I’ve never leased a car and in general I think it’s better to not pay your money toward something you will not own eventually, but in your case it does seem like a relatively good deal and apparently fits nicely within your budget. I’m glad to hear it’s working out for you.

  • I agree with your basic analysis. However, we tried the 2 yr old used car with a warranty. It was awful. The car was horribly unreliable and we had to threaten legal action to get repairs covered. It took a lot of our time. In contrast, my not so exciting new Toyota minivan was bought from a fleet dealer and has been very reliable and cost minimal time to own while being relatively inexpensive. I need to be able to get to work without car problems and so does hubby. After 7 years, we may replace it or keep it – not sure. No matter what, you have to factor time as well as $ s into the analysis.

    • That’s true, there is a risk in getting a used car that may end up being very unreliable and cost a lot of money for repairs. Sorry to hear that happened to you! I’m glad the minivan is working out better for you.

  • funksoul

    Although I knew this to be true, for once in my life I was able to finally buy my firt brand new car- a 2013 Hyundai Accent GLS. You know, one of the models they LIED about in terms of MPG, etc. My Accent MPG was starting to improve until late Nov and now I get 16 MPG in the city and a whopping 18-23 on the highway. Hyundai has “checked” it 3 times and I went on an “official” NOT ! gas consumption test that proved that my MPG’s are extremely sub-par. You would think Hyundai would help me, but not, they just keep telling me “sorry” and to accept the debit card , which in no-way makes up for why I purchased this POS. I have the California BAR on my side now and if they for some reason can’t help me work something out with Hyundai, well, she shall disappear and I will get a Certified Corolla. Being in a Customer Service type of role throughout my career I still cannot believe how little help you get with , almost anything , at the dealership. I sure learned my lesson 🙁

    • Sorry to hear about the difficulties you’ve had! That sounds like a real pain in the neck and it’s a shame the car manufacturer wasn’t better about responding. I hope it all works out and thanks for sharing with our readers.

  • nomrah20

    who cares about depreciation, what holds value anymore,, used cars maybe cheaper, but there usually beat to death, smell, or have other issues,, worry? you must be a total pussy to mention worry,, after market warranty’s are over priced and usually don’t cover crap,, who invest’s in a car? stupid argument… BUY that new Vette and have fun,, or be like the writer of this article and buy a used Subaru..

  • Barbc64

    I bought a 2005 Hyundai used with 23,000 miles on it,one car owner who had kept it well maintained – with an 100,000 extended warranty for $11,000. The best car I’ve ever owned,all the bells and whistles. The only issue I’ve had is the stereo system has quit working,which I feel is probably just fuse blown. If you shop around long enough – I believe buying a used car can be a good thing,and never forget to have a mechanic look at it before the purchase.

  • Devin Nelson

    I currently drive a 2004 Chevy Impala LS. I’m trying so hard to resist trading it in and getting something a little more luxury or more powerful. It’s very hard to since my car is worth at least 5000 still. I just get envious when I see other people my age (18) who are driving newer and more luxurious/sporty cars than me. I have the money to upgrade but at the same time I realize it’s not worth the extra thousands of dollars. Insurance would also be a concern.

    • Congrats on having the willpower to say “No”! It’s really hard sometimes, especially when others around you seem to be enjoying the latest and fanciest products – whether it’s cars, tech gadgets, clothing, etc. But I’m confident you’ll be glad that you waited. After all, you’re only 18, which means you’ve got plenty of time left to drive nice cars once you’re more financially ready!

  • Rajiv

    Yes buy the corvette and have fun or better yet lease a Lamborghini. Spend 10,000 and lease a car instead if buying one used for same. Such stupidity deserves a pat on the back and will keep a person like that in a hole and never get ahead. For such folks on keeping up appearances is everything as they will never “own” anything anyway.

  • Les Booze

    But if no one bought new cars, there wouldn’t be used cars, no?

  • Colby James Capps

    It’s true, depreciation is scary. And paying all that money for a new car might seem worth it now, but 3 years later your new car won’t seem so cool when the new models have even better features than the one you paid dearly for.
    But as far as depreciation examples from homes to investments to cars and so on, not all products are made equal. A car can be expensive, so cheaper things may not matter as much. but who buys a 5 year old laptop? Those are already old and outdated. If a car was an investment, you would never buy one, used or new. Depreciation for me only matters if I am going to sell the car within the first 5-7 years. Depreciation is irrelevant in my mind because my car should be worth a negative value by now if depreciation held true. Do we not buy new things because they lose value? Do we buy old produce because it loses value faster than new produce?

  • Solerider

    Funny how investment “gurus” never seem to place any value on safety when it comes to purchasing cars. Here’s a newsflash and something you should consider. All things constant, new cars are drastically safer, particularly when purchased with the latest collision mitigation systems, than their predecessor only a few years older. Saving money is imperative, but so isn’t earning it, which you will need to do in order to save it. It’s harder to earn an income with a disability that resulted from a car accident, and even harder if you were killed in that accident. The net present value of all that money saved in exchange for less safety features may not have as much future value after one discounts for the additional risk associated with driving an older car.

    Drive safe!

  • Stanislav

    If you are too dense to learn how cars work, how to repair them and what appropriate costs for repairs/parts are, you are a great candidate for a new car. You wont save money, but it will save you from having to learn new things, which you don’t want to do anyway.

  • kjchitown

    People do go crazy over new cars and they keep then looking like new longer(I know, I bought a new vehicle in 2013)but, as the article stated, cars can lose their value and become blemished-no matter how you take care of them-they’re just vehicles that get you from point A to point B