Finance Friday: Five Reasons To Never Buy a New Car

A Škoda Superb II car. Français : Une automobile Škoda Superb II grise. (Photo credit: Wikipedia)

Having a shiny new car to show off to the world can make you feel good. A new car also comes with a warranty that gives you peace of mind for a few years. But despite the advantages of a new car, there are several reasons never to buy one.

(1.) Depreciation

New cars literally lose value the minute you drive them off the lot. Estimates vary, but generally a new car can lose up to 30 percent of its value in the first year and 15 to 20 percent a year after that. That means your $30,000 car could be worth only $21,000 after a year. Used cars depreciate much less quickly. This isn’t only peculiar to the USA. In the UK a new car will lose about 5% of its value as soon as it leaves the forecourt. It’s similar in Australia, where a car like the Honda Jazz will rapidly depreciate in value shortly after being purchased.

(2.) Price

New cars cost a lot. The average price of a new car was more than $30,000 as of 2012, the most ever even when you adjust for inflation. That number is up several thousand dollars over the past few years. There is a lot more price variance in used cars as well as a lot more negotiating room for the dealer. Most people also finance cars, and even though rates are slightly higher on used cars, you are likely to pay more in finance charges on a new car because of the higher price.

(3.) Insurance costs

The more your car is worth, the higher the cost to insure it. Since new cars cost more, they have a higher value, especially in the first few years of ownership. That means they cost more to insure.

(4.) Registration and taxes

You have to pay sales taxes on car purchases, meaning the more expensive your car, the more you pay in taxes. If you buy a $30,000 new car and your sales tax rate is 5 percent. You’ll owe 1,500 in taxes. Buy the same car used for $20,000, and your tax bill is only 1,000. Some states and counties also levy personal property taxes or registration fees that are based on how much the car is worth. That means the more expensive the car, the more you will pay to register it.

(5.) Avoiding a new model year

Buying a new car is one thing, but buying a new model or one that’s been redesigned is another. New or redesigned models often have bugs that are only discovered once the car hits the road. Of course, your dealership will fix such glitches free of charge, but it’s still a hassle. When you buy used, you can research to find out how a particular model has performed long term and you can also find out about any recalls or problems that particular car has had.