Due to depreciation, buying a new car is comparable to lighting $100 bills on fire and throwing them out the window while driving. At some point in our lives, we all have faced the dilemma of acquiring a new or a used car. It may have been during the unforgettable acquisition of our first vehicle, which for the young, represents a great step in life, or to replace what we already have, since it is already in the last miles of its life.
The second biggest and important purchase that you will make in your life, after that of a house, will be the purchase of a car. But unlike houses, which increase in value over the years, vehicles lose value. Renowned personal finance expert Dave Ramsey talks about how we should make this important purchase and how to make the most of our money. Here are a few reasons it is better to buy a used vehicle than a new one.
New cars lose 70 percent of their value in the first four years of use. To get a better idea of what's going on financially when you drive a new vehicle off the lot, I invite you to perform the following exercise: drive your current car with the windows down, and repeatedly toss out $100 bills. Try to do this every Friday, if possible. It seems crazy, right? This is exactly what we do when purchasing a beautiful new vehicle.
Another advantage of buying a slightly used vehicle is that the first owner has already absorbed the cost of depreciation. You get an excellent price for a vehicle that only has four years of use and whose price is well below the cost of a new one.
Car agencies have a large amount of used vehicles, especially those for which the lease or rental agreements have expired. However, the best deals are from private sellers who are eager to get rid of their vehicle. These will have a better willingness to negotiate with you so you can get a car at an excellent price. You can also call banks and find out where they sell the vehicles that have been repossessed. Now that you know why you should not buy a new car, here are three recommendations before you go to find the car of your dreams.
Financing versus saving
Let's say you are thinking of getting financing to purchase a vehicle, and that your payment will be $400 a month. Let's say the car you're replacing is valued at $1,500 dollars. If you set aside that $400 and you pay for yourself, instead of sending it to an agency, in just 10 months you'll have $4,000 to pay cash for a vehicle.
Our perspective on money changes dramatically 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.
Before buying a vehicle, be sure to determine its value in the market, especially if you are considering buying it from an agency. In the US, you can visit sites like KBB, Edmunds and Carmax. Remember that knowledge is power! Do not venture to make the second-most important purchase of your life without doing due diligence beforehand.
Flee from temptation
Vehicle sellers are great experts, not only in making you fall in love with a new car, but in getting you signed for a loan for which you will pay a very high price for for many years of your life. Keep in mind that unless you are a millionaire, you cannot absorb the cost or impact of the depreciation of a new vehicle. It is a luxury that simply is not worth the price!