Buying a new car is not always a savvy financial idea. All those people who tried to sell their car after its second year realized that its value is significantly lower than the debt it created. This happens because in the first two years of loan you are just paying the interest and your car market value dropped at least 30%.
Different situation is with frugal drivers who bought a second hand car that is 6 years old. Two years after, value of that car is almost the same as when they bought it. That is true under assumption that you didn’t bought junk from some tricky car dealer. There is always risk when you are buying a second hand car, you can never be sure what has happened with that car and why the other person is selling it.
Cars which are older than 10 years are totally different story. If you are proud frugal owner of one of those, you can expect different ways of losing money, through workshops, paint shops and towing service which can cost much. For example, if you had two car repairs in this year with average repair price of 400$ and you rented the car for 300$ in those moments because you can’t go to work without it, you will lose about 1100$ per year, and again you will be returned to the comfort of your old car which have ever increasing crescendo of squeaks and rattles that characterize aging vehicles, and when you need it the most, it will fail you, especially if want to go on a longer journey.
On the other hand, if you owe a new car, it has a guarantee and it is much more reliable and comfortable than the used one. If something happens to this car, most dealers will provide you with a replacement car while your is in the workshop. If you have a good credit report, it pays off to check what kind of loan options you have for a new car.
And What About Big Repairs?
Major repair can cost up to 1.200$. You simply have to pay for these, but you should really ask yourself is everything working perfectly on your car and is that the only thing that needs to be repaired. There is a famous sentence: “Never check a condition of your used car, mechanic will always find some fault!” On older cars, you can always expect damages or computer failure, engine or transmission failures. Depending on the age of your car, major repairs to steering, suspension and brakes could also fall into this category. These kind of failures can cost you several thousands.
Older cars are also bigger gas consumers than the new ones. For example, if you take new Chevrolet Impala and compare it to old one from 2005, on average year mileage (around 15.000 miles) you will spend about 250$ more on fuel each year according to National Driver Association. With higher mileages, saving is higher with a newer car. And if you take Hybrid into account, spending is significantly lower.
Other Financial Reasons For Buying A New Car
Interest rates are on lowest level ever. In 2008 Federal Reserve (FED) lowered interest rates to help economy recover from crisis and increase spending. Until 2008 FED rate was 4,75% what caused that the cost of loans were higher. Now FED rates are around 0.25%. There some assumptions that FED is preparing banks for a rate increase in the last quarter of 2016 or in first quarter of 2017. What could raise costs of borrowing and consumer loans. So if you are thinking about buying a new car, now it’s the right time! Canada already raised its benchmark rate in August.
Since 2008 TAX credits also have a big impact on car market. They are presented with the purpose to encourage people to buy more efficient vehicles. So if you are considering to buy a hybrid, electric car or a conversion kit, Tax credit could benefit you.
So Lets Summarize
New car is more reliable and spends less. Comfort of driving is on much higher level and it is more reliable especially on long rides, and if something happens you have a guarantee, free tow service and replacement vehicle. Old cars have a tendency to become unreliable, have higher gas consumption, comfort of driving is not superb, and if it stops in the middle of a road, you will have to pay for tow services.
In some cases, if your old car is reliable and needs only regular maintenance, it is reasonable to stick to it for a year or two longer. Otherwise, you should consider buying a new one.