New cars are status symbols. They're sexy and stylish and make you look and feel awesome as you drive them. I'm sure there is a huge surge of pride whenever a friend or colleague sees your car and asks about it or comments appreciatively. New cars also come with fewer problems and warranties to help in unexpected situations. But there are a few significant reasons why you shouldn't buy a new car unless your finances are completely secure:
A New Car Depreciates Faster
Unfortunately, the fact is that new cars lose nearly 60% of their value in the first five years. Indeed, you lose almost 9% of the value of a new car the minute you drive it off the lot. In most cities cars are a necessity for work and everyday life, but it's important to remember they are a product of convenience, not an investment.
Do you think people would buy homes or stock if we lost 9% of the value ten minutes after we closed the deal? No, we would not. Which is why you need to be financially secure if you plan to buy a new car - and understand that the car's value will decline quickly. If you buy a used car that is four years old, the previous owner has already eaten the initial cost of depreciation for you, meaning you're saving money (as long as you don't have to do extraordinary repairs on the car). Cars depreciate no matter what, but after 4-5 years, the pace of depreciation slowly quite a bit.
A New Car Means a Monthly Line Item
The universal rule with monthly payments is that just because you can afford them doesn't mean you should have them. I just recently purchased a home, but I doubt I'd be able to handle the mortgage and new utilities if I also had to budget $300-400 for a car payment.
I've seen countless friends purchase new cars after getting their first "real" job even though their new budgets couldn't accommodate such a hefty line item in their budget. The result? Heavy use of credit cards to fund the other aspects of their new "adult" lifestyle.
Buying used means a lower monthly payment - or maybe even no payment at all - which means more money in your pocket each month for other things, including savings and paying down debt.
A New Car Means Higher Car Insurance
You may already know this, but car insurance costs more when you have a new vehicle. Why does it cost more to insure a new vehicle? Well, because the cost of replacing them if anything goes wrong is greater. In the event of an accident, it costs insurance companies more to replace a brand new vehicle than an old one. Many people do not realize that in order to finance a new car, you will have to be fully covered for your expensive new purchase by the bank. Car insurance isn't something you should skimp on ever, but especially so when you buy a new car.
A Used Car Can Give You Greater Peace of Mind
I know that if I bought an item for 30 or 40 grand I would obsess over it. I'd try to keep it in brand new condition, and I'd make sure to park it away from everyone and everything that could potentially ding the exterior or scratch the paint. In other words, I'd be stressed out about it! I know myself, and I know that I don't have the mental bandwidth to worry about protecting a precious, brand new car. If I bought a used car, of course I'd still want to take care of it, but it wouldn't be such a loss or heartache if anything happened to it and that alone would give me greater peace of mind.
