Most people know new cars depreciate the moment you drive them off the lot, which makes a new car a questionable investment. After all, you will probably owe more on the car than it is worth for quite some time. If you see a tempting new car offer, you may be wondering, is buying a new car ever a wise investment?
While it is best to maintain your current car and keep it for as long as possible, there are a few ways that newer cars can save you money.
Advantages of a New Car
One of the best reasons for purchasing a new car is reliability. Since the car is brand new, it is unlikely you will have any mechanical problems. Also, new cars come with a factory warranty, which means any mechanical problems will be fixed at no cost to you.
There will be fewer maintenance costs to begin with, as you will only have to worry about changing the oil or replacing your wiper blades–hardly major expenses. Also, as long as you follow the maintenance guidelines found in your user manual, you can count on your car to run well for a longer period of time. In fact, some cars will run well for up to 200,000 miles, which means if you take care of your car now, you will have fewer to buy over the cost of your lifetime. If you buy a car used, it is hard to know whether the previous owner properly maintained the car, which could create costly repairs in the future.
A new car could also save more at the pump, especially in the future. By 2025, a new car in the United States will have to average 54.5 mpg. To reach this optimistic goal, manufacturers are installing automatic engine start/stop systems, building more lightweight and aerodynamic cars, and researching technologies to make cars more fuel efficient.
Technological advances are also making cars safer. While it may not save you any money, a new car could provide peace of mind, as they tend to be safer. New technology, such as collision avoidance technologies, is eliminating the risk of wrecks.
Even if you are in an accident, newer cars can keep you safer. Since 2011, the Insurance Institute for Highway Safety (IIHS) has enhanced the minimum safety standards required by the federal government. As a part of this push, the IIHS has started to designate cars a “Top Safety Pick.” To earn this title, new vehicles must pass a stringent crash test, so manufacturers have started to manufacture more durable cars.
Finally, your bank will generally offer you better financing rates on new cars, meaning you may pay less in interest. While your payments are likely to be higher since new cars cost more, you may waste less money on interest in the long-run.
Why are new cars a bad idea?
There are some downsides to new car ownership. You will have to pay higher taxes on a new car purchase and generally pay more for insurance. The most compelling reason to avoid a new car, though, is that they depreciate quickly. Your car loses most of its value within the first two years of ownership.
If You Do Opt for a New Car
If you have weighed the pros and cons and have decided the safety and reliability of a new car is worth the financial hit of depreciation, there are a few things you can do to make sure you get a good deal:
* Do your research to make sure you pick a car that will remain reliable and hold its value. Not all new cars are created equal and some are poorly manufactured. You will also want to call your insurance company to compare rates for cars you are considering.
* Once you have decided on a car, shop online and force dealers to negotiate with one another. Do not go to a dealership and let a smooth-talking salesman sell you a car for the invoice price. If you have a flexible timeline, consider waiting until the end of the month or year when dealers will be more willing to negotiate.
* Get your credit in good shape so you qualify for a good interest rate.
After you have gotten a great deal on a new car, take care of it so it lasts for years. Cars are a depreciating asset, so you want to limit the number of vehicles you buy over the course of your lifetime.