For those trying to achieve Financial freedom it becomes important to asses all aspects of your personal finance including your purchasing behaviors such as buying a Used Vs a New Car.
If you have a vision board set up with goals of achieving financial freedom, then this post is for you.
My husband and I have owned multiple cars over the course of our marriage and I owned one car, a Mitsubishi mirage before I got married. All those cars were used cars and we never purchased any new cars.
Back then when Craigslist was a bit safer, we bought a couple and even sold a couple at a profit.
The only time we bought a new car was when my daughter was born, when we both knew we needed a reliable car, this after our used car broke down in the middle of the highway with just me and my 6 month daughter in the car. Yeah for triple A that came to our rescue.
So the question is if you are moving towards achieving your goal of financial freedom, what makes sense in terms of buying the kind of car?
Let’s look at pro’s and con’s of a used car versus a new car.
- These cars do not depreciate as much as the new cars:
New car’s depreciate at the rate of 20 % immediately and then 30% later. What that means. Say you buy a car for 20,000 dollars and you go home happy and merry. What you don’t know is that the value of your car has now gone down by 4,000 dollars. Next, by the end of the first year, now your car has a depreciation of 30%, down 9,000 dollars.
5 years down the road, you have an itch to sell this car and purchase a new car, you end up selling the car for 10,000 dollars. You lost 10,000 dollars.
Edmunds has a write-up on the same.
- Used Cars are cheaper to purchase:
Say you buy the same car from the gentleman or woman mentioned in #1 above for 10,000 dollars. You bought the car not new. The rate of depreciation slows down significantly. In essence you did not take the burden of buying a new car.
There is an interesting article on millennial by the Savvy Couple.
- Used car’s are cheaper on insurance:
Used car’s are normally cheaper on insurance. You do not have to add the bells and whistles like you would on a new car.
- Used cars have a lower excise tax
I get a tax bill for both our car’s, we bought one new and the other one is a 1991 Volvo. Guess which one is lower. The 1991 Volvo.
- Used cars have lower registration rates at the time you register the car
I have seen this personally, when I went to register my new car I cringed that I had to pay a lot more for the registration fee. I mean a lot!
- Used Cars may need a lot more maintenance: Some used cars end up being lemons. STAY AWAY FROM THOSE! Some states have a lemon law. So do your research. If you do buy a car that has issues then find a way to get the car fixed inexpensively. Some trade schools will take your car in to do repairs at low charge or no charge. Research those options.
- New Cars are more Reliable: Make sure you take a friend or a mechanic that knows cars when you are purchasing a used car. If you have young kids and if you do decide to purchase a used car, then you may want to think about adding triple A or just buying a new car. Read Ramit Sethi’s article on the same subject.
We have had several used cars and most of them were good but some needed a lot maintenance. We have a newer car now and touch wood we have not had issues with the car. I have been happy with it.
What would you prefer if your goal was to achieve financial freedom. Used Vs New Car? Would love to hear from you.