Deciding whether to buy a new or a used car can be difficult. When considering your options, which of these three do you fall under:
- I am looking for a particular car, and am not concerned with its depreciated value over time.
- I am looking for a balance between investment value and features/preferences.
- I am looking for a car that will retain the highest value possible over time.
There are distinct advantages and disadvantages no matter which way you choose to go. But let’s look at my recommendations based on the above categories. If you fall into Category 1, you should buy a new car, and drive it for years to come. The key thing here is, that you do not sell you car within the first two years, as new cars lose 60-70% of their value during this time. You should expect less maintenance costs with a new car, but I highly recommend obtaining a great warranty package as well to further reduce your maintenance costs, the point being that since you will be making a car payment, you want to have as few unforeseen costs as possible.
If you fall into Category 2, your decision is the toughest. You will most likely want to buy a used car, looking to take advantage of the first owner’s loss in value, but not too old (maybe only 2-4 years old). But, you also have preferences, such as how large the vehicle needs to be to suit your family, bad weather performance capabilities, gas mileage, and aesthetics like color, interior type, etc. This will instantly narrow your list of potential candidates to choose from, and you may want to consider buying a dealer authorized pre-owned vehicle. You may still end up with a car payment, but you will have the satisfaction of retaining the value of your vehicle longer, and the advantage of a dealer warranty and inspection/guarantee. For many middle income families, this is a very popular and often chosen method.
Category 3 is where I fall. This type of person is looking for maximum value and Return-On-Investment (ROI). They will buy an old car (I usually buy cars that are 10-15 years old) that has high mileage and only a small blue book value. Many times I will buy my cars for around $2,000-$3,000 in cash. I have no car payments, high gas mileage, and low car insurance costs because old cars aren’t worth much. Maintenance costs tend to be a little higher, but still far less than a car payment every month. The key here is to choose a reliable vehicle, and my personal preference is to go with small 4 cylinder Hondas. My last Honda Civic lasted about 3-4 years and was pretty reliable, with only a handful of maintenance problems. Hondas run forever (many people putting 200,000+ miles on them) and are known for their lack of maintenance nightmares.
In closing, I recommend buying an old used car, paying with cash, and driving the car for as long as possible. You will be able to take advantage of someone else losing all the value of the car due to depreciation, you will not have a car payment, and your car insurance costs will be less due to the lower value of the vehicle. It just makes the best sense financially speaking.