Beat the Initial DepreciationDepreciation is a major cost in vehicle ownership. Understanding how depreciation affects you, you can save a great deal of money on every car that you purchase. Take a brand new car for example. It loses 20% of its value as soon as you drive it off the lot, so your $30,000 car is now worth $24,000 and you havenít even pulled into your driveway. By the end of the first year, depreciation coupled with mileage along with wear and tear could bring that down another 10% to $21,000. Thatís $9,000 of value lost in the first year alone.
Now consider the same car, but at three years old. Itís lost half its value due to depreciation which means you could purchase that car for around $15,000. As the rate of depreciation slows as the vehicle ages, you could sell that same car three years later for $10,000. So the used car depreciation cost you only $5,000 over three years of ownership.
Lower Monthly PaymentsAccording to recently released research, new car buyers are financing on average $31,453 on their new car (after the trade and down payment). They're financing it over five years and nine months (69 months) and are shelling out monthly payments averaging $523. Based on the depreciation figures we just looked at you can see that the buyer will owe more than the car is worth for most of the time that they possess it. This can lead to serious problems if the vehicle is stolen or totaled, as the insurance company will typically only reimburse for the current value of the vehicle.
From the same report, it indicated that the average payment for a used car is $371, which is $152 less per month, and nearly $2,000 over the course of a year. The term of a used car loan is typically shorter than a new car loan, so you'll be spending less on interest (even though used car loan rates are slightly higher than new car rates).
Reduced Insurance and Registration CostsIn most states, the older a vehicle is, the lower the registration fee. That's one place that you'll continue to save for as long as you own the car. And in some states, the fee is not insignificant. The average used car buyer holds onto their vehicle for 5.5 years so you could be paying $100 less per year in registration and license fees than if you purchased a new car, that's over $500 that you'll save.
Likewise, vehicle insurance costs less for used cars as well. That's largely because the value of your car is less. But be aware. You may well be at the point where the value of the car equals what the insurance company would reimburse you should it be stolen or totaled, but it's best to check first. In the event that you are "upside down" for the first year or so, you can purchase inexpensive GAP insurance. This will cover the difference between the value and loan balance if the worst case scenario should happen.
There are actually more than three reasons to purchase a used car over a new car. In fact, if you search on the internet you'll find that many financial advisors and investor publications advise their readers to purchase a used car as they believe it makes better financial sense.
So be wise, think with your head and not your heart, and make a smart financial decision by considering the purchase of a used car over a new car, youíre wallet will thank you.