Buying a Car: In with the Old, Out with the New?

Of all the decisions one makes in a lifetime, few can match the emotion associated with the purchase of car. Functionality often has little to do with it. Any reasonably working car will get you from point A to point B. This is, after all, the real reason for buying a car. Or is it? There are other functional pleasures one can get, of course, such as airconditioning, safety, steering and maneuverability, and the like. But all these can be found in both new and used cars. So what tilts the balance in favor of one over the other?

You have a wider variety of choices to fit your taste and budget when you buy a new car. You can even have a model customized if you really can’t find one to your liking. If you choose properly you might even get one with a high resale value, or one that’s bound to be a collector’s item. You’ll get better financing rates, and you’ll get the latest features that can’t be found in older models.

There are other benefits, too, like reduced maintenance. For the first several thousand miles, all you’ll need is an oil change and some tune up which some manufacturers offer for free. You won’t likely need new tires, a battery, exhaust system or brakes during the first few years of ownership or longer. Your unit will be covered by warranty for 3-4 years. If something goes wrong, the manufacturer is bound by an agreement to fix the defect or replace the unit. You’ll get roadside assistance, as well, while the vehicle remains under warranty. Overall, you’ll have peace of mind. But, at what price?

[Read: The Anatomy and Physiology of the Used Car Business]

Price is the used car’s strongest selling point, and it’s not one to be laughed at. It’s common knowledge that the price of a brand new car drops steeply the moment you drive it out of the showroom. Expect your new car to lose at least 30 % of its value in the first two years of ownership. In dollar terms, cars depreciate in value by at least $1,500 each year, and about

$2,500 on average. This is an amount you can never expect to recover no matter how much maintenance you spend on your unit. A new car is a bad investment. In fact, it’s not an investment! It doesn’t earn you anything. It’s an expense, plain and simple.

If you’re having the new car financed, as most of us do, there’s the added expense of interest and other fees that you have to worry about. You’d also pay more to insure a new car with a higher value than you would with a used one.

Don’t worry about what your friends and neighbors will say if you bought a used car. They might be thinking of getting one for themselves, too, now that reliability of used cars has vastly improved and there are more choices available. The recession has turned car sales into a bear market and there’s less stigma associated with a second-hand unit.

To maximize the smartness of your used car purchase, you’ll need to check if you have enough resources to buy it in cash. Otherwise, you’d be adding to the cost substantially if you have it financed. What do you do with the money that you didn’t throw away on a new car? Throw it into investments that will earn you more money, instead.

By Allan Jay

Allan Jay is FinancesOnline’s resident B2B expert with over a decade of experience in the SaaS space. He has worked with vendors primarily as a consultant in the UX analysis and design stages, lending to his reviews a strong user-centric angle. A management professional by training, he adds the business perspective to software development. He likes validating a product against workflows and business goals, two metrics, he believes, by which software is ultimately measured.