Due to depreciation, buying a new car is comparable to throwing $100 bills out the window while driving. 98% of people can’t afford that luxury
I wrote this article on how to buy a car wisely with my life partner and personal finance advisor, Daniel Cabrera, from whom I learn so much every day.
At some point in our life we have faced the dilemma of acquiring a new car or a used one, whether it is the unforgettable acquisition of our first vehicle, which for young people represents a great step in life, or either for replace the one we already have, since it is already in the last miles of life.
In case you did not know, the second largest and most important purchase we will make in our lives, after a house, will be the purchase of a car. But unlike houses, which increase in value over the years, vehicles lose it. Renowned personal finance expert Dave Ramsey talks about how we should go about making this purchase and how to get the most bang for our buck. Here are the reasons why it is better to buy a used vehicle instead of a new one:
New cars lose 70% of their value in the first four years of use. To give you a better idea of what happens financially when you buy a new vehicle, I invite you to do the following exercise: drive your current car and while doing so, roll down the window and repeatedly throw $100.00 bills. Try to do this every Friday. Sounds crazy, right? This is exactly what we do when purchasing a beautiful new vehicle. The reality is that 98% of people simply don’t have the ability to waste this amount of money on a new car.
Another advantage of buying a lightly used vehicle is that the first owner has already absorbed the cost of depreciation. On the other hand, you get an excellent price for a vehicle that is only four years old and whose price is well below the cost of a new one.
Car dealers have a large number of used vehicles, especially those whose lease or rental contracts have expired. However, you find the best deals with private sellers, who are eager to get rid of their vehicle. They will have a better disposition to negotiate with you and so you can get a car at an excellent price. You can also call banks and ask where they sell vehicles that have been repossessed or repossessed.
Here are 3 recommendations before you go looking for the car of your dreams:
1. Financing vs saving
Suppose you are thinking of obtaining financing to acquire a vehicle and that your payments will be $400.00 per month. Let’s say the car you’re about to replace is valued at $1,500.00. If you set aside that $400.00 dollars and pay yourself, instead of sending it to the agency, you will soon have $4,000 USD to pay in cash for a vehicle (in just 10 months).
By selling the previous one you will have $1,500 USD in the bank. If you continue to save the $400.00 for another 10 months, you will have $5,500 USD. Repeat this process for 10 more months and you will have $10,000 USD to buy cash for another car and it will only have been 30 months since you started saving. What sense would it make now to buy a new vehicle and watch its value decline at the speed of light?
Our perspective on money changes radically when we have cash in hand. It is easier for us to make a bad financial decision when it comes to obtaining something through credit. When it comes to investing the fruit of our savings, we are much more cautious and intelligent in the purchases we make.
2. Get informed first
Before buying a vehicle be sure to research its market value, especially if you are considering purchasing it from a dealer. In the US, you can visit sites like KBB, Edmunds, and Carmax. Surely there is an equivalent in your country. Remember that knowledge is power! Don’t venture out to make the second most important purchase of your life without doing a good job of research first.
3. Flee from temptation
Vehicle salespeople are great experts, not only in making you fall in love with a new car but in getting you to sign for a loan for which you will literally pay a very high price, for many years of your life. Always keep in mind that, unless you are a millionaire, you cannot absorb the cost, or the impact of the depreciation of a new vehicle. It’s a luxury that is simply not worth the price!
Along with this article, you should read this other: A second-hand car has details. Do you know how to detect them when buying it?
And this other will also be useful: Tips to save fuel