Like it or not, you'll probably need to replace the car you're driving one of these days. Either the engine will start having problems, the transmission will need serious work or a convergence of factors will cause your beloved vehicle to suddenly conk out. And we all know that pricey repairs can sometimes negate any savings earned from driving your car into the ground."
So, what's the solution? You trade it in, of course, or sell if to some poor college kid who merely needs a ride to work. Then it's off to the dealership to pick out something shiny and new.
But the decision to purchase a replacement car shouldn't be as cut-and-dry as picking out a car in your favorite shade of blue and driving it home. There are a variety of factors to consider: How much do you want to spend? Do you need a warranty? Can you pay cash or need financing to seal the deal? But first, you need to decide on one of the most important issues related to your car purchase -- should you buy new or used?
Everyone loves that new car smell. Then there's the way the interior has been carefully covered with plastic. The stickers still on the windows. The odometer that reads zero. And when a clever salesman gets ahold of you -- watch out! A smooth-talking professional can convince you that you can afford the car of your dreams without a shadow of a doubt.
But with all the talk of low monthly payments and cash back, there are a few things your crafty salesman or woman won't tell you. And unfortunately, those tiny gems of information are perhaps the most important things you should know. You know the saying, "The devil is in the details?"
New Cars Face Instant Depreciation
A growing body of research shows that a brand-new car may not be the best way to spend your hard-earned cash. According to Edmunds.com, your new car could lose as much as 9 percent of its value the minute you drive off the lot. That means your brand new $30,000 ride might be worth as little as $27,300 by the time you get it home to show your wife. And one year later? Your car might now be worth as little as 81 percent of what you paid for it or $24,300.
The news only gets worse from there: Your car is worth as little as 40 percent of its retail price five years after you buy it.
New Cars Bring Higher Costs
Your monthly payment isn't the only way a new car will assault your wallet. People forget that new cars (especially those with a loan) sometimes require higher levels of collision and liability coverage. The manufacturer suggested retail price also weighs heavily on the overall costs to insure it. What this means is that a new, expensive car might cost significantly more to insure than an older, used model.
But that's not all. Depending on where you live, the cost of license plates and vehicle registration are often commensurate with the retail value of your vehicle. In other words, your expensive new car will cause you to pay more for the privilege of parking on the street -- sometimes a necessity if you live in a large city.
The Psychological Benefits of Buying a Used Car
So now you know you'll likely save some cash by buying used instead of new, but what about the emotional aspect of your purchase?
Sure, you might feel slightly deflated when you drive off the lot with a used car instead of new. However, you might also feel a psychological boost from not having to worry too much about the upkeep of a brand new car.
Think about it. As we all know, life happens. That sweet little old lady at the grocery store is bound to slam her cart into whatever you're driving at a certain point. And we all know what birds do. In our complicated world, not having to stress over the elements or a little ding here or there is worth something.
The bottom line: It's your car and your decision, but it's important to understand what having a new car really means. Of course, it feels good to buy something new and show your friends and neighbors that you're doing well, but that new car smell might cost far more than you ever realized.
Holly Johnson is the founder of personal finance website, Club Thrifty, which provides tips for frugal living, budgeting, and more. Holly also writes about frugality and travel at Get Rich Slowly, Frugal Travel Guy, and her other website, Travel Blue Book.
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