Over the years, new cars have doubled in price. Due to the economic downturn, fewer people are able to afford high interest rates and monthly payments for new cars that only continue to increase in price. Today an average new car costs $30,500. Due to this, used cars are now increasing in popularity for the benefits and reliability that they offer for different budgets.
Did you know that if you buy a new car, you take a 30 percent depreciation hit as soon as you drive it off the lot? Once driving the vehicle off of the lot, the car loses value and continues to depreciate. Most depreciation happens in the first year, losing up to 20 to 40 percent of its overall value. Eventually, a three-year old car can only be worth 80 percent of its two-year value. Most financial experts recommend purchasing a used car model that is at least two years old simply due to the savings involved.
With median household incomes earning just $50,502 annually in America, a monthly payment on a new vehicle is just not within reach or practical for many households. Increasingly, new car purchases are financed for 72 months or longer, adding thousands of extra dollars in interest.
Higher Interest Amount
This added interest makes it likely you will owe more than the car is worth for three years or more and will leave you upside down financially. Being “upside down” in terms of equity makes it very difficult to purchase that next vehicle before you pay 5 to 6 years on your current vehicle. Financing a used vehicle is much more manageable and comes with less long-term risk involved. It also allows buyers to save more for emergency repairs and maintenance needed on the vehicle.
Although many people desire new cars for the alluring warranties and fresh interior smell (both of which you can have with a used car), it comes at the hefty of price of higher depreciation, more interest expense and longer terms. Buy a quality used vehicle and you can avoid all of these pitfalls.