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some interesting facts before buying your new car
- Beware of depreciation
(which can vary by car).
- How depreciation works?
A car loses about 15-20 percent
of its value each year. For example:
- Let's start with a 1-year
old used car worth $15,000 that loses 15%
of its value each year.
- At 2 years old, the
car value is worth $12,750 (85% of $15,000).
- At 3 years old, the
car value is worth $10,838 (85% of $12,750).
- So what is the value of a new
car?
You can lose thousands once your
drive your new car off the dealer's lot. Why?
Because the price you paid for
the car is the retail price (not counting the
taxes and licensing that are sunk costs). If you drove
that new car back to the dealer, the
most the dealer will pay is the wholesale price
(the same price he would pay the manufacturer).
So your value drops instantly from
the retail price to the wholesale price once
you take possession. That drop could be in the thousands
depending on the type of car and model.
- So why not buy used?
You will be paying for the market
value of the car instead of dealer markup.
Some 1 year-old cars are great values that can save
you thousands in financing costs. Get the facts:
http://www.carfax.com/
Kelley Blue Book
Some places to look for used cars:
see our "finding a
car section"
- Leasing is simply a 3-yr or more
rental agreement. You are renting the car for
a period of time that you will return at the end of
your leasing agreement.
The advantage of leasing is that the
monthly payments are significantly lower than
financing.
The disadvantage of leasing is that you
will not be building any equity value. You
don't own anything.
The financial advantages and disadvantages
of leasing will vary by person and circumstances.
- If you are a person who must
drive a new car every 1-3 years, then leasing
may be your best financial option.
- If you are a person who likes
to replace your car every 5 years, then either
leasing or financing will be your best financial
option.
- If you a person who likes to
drive the same car for 7 or more years, then
financing would be your best option.
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