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Buying a brand new car is fun. There is something special about being the first owner of a vehicle. You know that no one has spilled their drink or hit a curb, and the space between the seat and console is empty of fossilized french fries.
But by far, the best part of owning a brand new car is… the smell. New car smell seduces your olfactory glands and makes you take the deepest breaths ever (outside of yoga class).
Unfortunately, after a little while, reality sets in. The new car smell wears off. Suddenly, the highway is filled with people driving the same model, and your car payment takes a bigger bite out of your budget than you expected.
A new car can be great, but there are major tradeoffs.
Here are four reasons why you should never buy a brand new car.
One universal truth of buying cars is that the new model is more expensive than the older model of the same car. A 2017 model is going to cost more than a 2013 model.
The higher cost is a good reason why you should never buy a brand new car. You’ll have to shell out more cash, have more stressful car payments and you can’t even eat in it for at least six months.
If you purchase the car with a loan, the additional cost is compounded because you are paying interest on the inflated amount. For example, if you bought a car for $30,000 with a 5-year loan at 4.5% interest, over the course of 5 years you actually paid $36,377.43.
Furthermore, just to kick you while you are down, your car is now only worth $11,163.00!
Similar to buying a TV or phone, you are paying a premium if you buy a car when it first comes out.
Patience pays off, wait and the price will come down.
You’ve heard the saying that a car loses value the second you drive it off the lot. It’s true!
Another reason why you should never buy a brand new car is that new cars depreciate faster than older cars. According to Edmunds, cars depreciate 19% on average the first year. That means that a year after buying a $30,000 car, it is only worth $24,300. You have lost $5,700 in equity in one year!
See how fast your new car depreciates:
Why buy something that immediately loses value? Instead of buying the brand new car, you could buy one that is a couple years old and save on depreciation cost.
Higher Insurance Cost
The cost of insurance is partially based on the cost to replace the vehicle. Because the parts (or the car itself) would be more expensive to replace, the insurance company charges you higher premiums.
For example, a car worth $30k costs more to insure than one that’s worth $15k. The insurance company passes on that replacement risk to you in the form of premiums.
Higher premiums might put pressure on your budget or spending plan.
It is worth noting that newer cars don’t always have higher insurance costs. Enhanced safety features and additional security systems could actually reduce the cost because of the lower likelihood of injury or theft.
Do your research before you buy. Talk to your insurance company and don’t be afraid to shop around for better rates.
While all cars are subject to recall issues, vehicles that are a couple years old have had more time for issues to be discovered and addressed.
Brand new cars, especially ones with newer technology, can be susceptible to flaws and recalls. This can be particularly frustrating because one of the main benefits of buying a new car is that it should have fewer service problems.
For example, a few years back the Tesla Model X had an issue with doors that failed to open. Think you’ve had a bad day? Imagine spending $80,000 on a car that you have to enter and exit through the trunk! What a waste of money!
Tesla fixed the problem, but it was a major annoyance for early adopters.
Rather than buying a car brand new, let others be beta testers first.
What Do You Buy?
There you have it. Because of cost, depreciation, insurance, and recalls, you should never buy a brand new vehicle.
If you don’t buy new, then what should you do? The answer is obvious… ride your bike. Or, if pedaling 30 miles a day isn’t your style, you could always buy a used car.
Buying a newer used car is a great alternative to buying brand new. You still get a relatively new car, but can save a significant amount of money.
And maybe, just maybe, you can find that new car smell in an air freshener.