Do I choose a used or new car?

“Should i buy a new vehicle?”

You can ask almost any personal finance expert this question and they will give you many reasons to buy used.

Used cars are a great way to go. However, limiting the scope of “used is best” to only one vehicle is too narrow. Ramit believes that there are more reasons to buy a new vehicle than buying one used.

Is it more cost-effective to buy a used or new car over the long term?

This is a difficult question to answer as it depends on what car you buy and in which condition it is. You might find a bargain if you buy a decent car in good condition.

Here’s the problem. Are you able to assess whether the car you are buying is worth it? You can’t guarantee that it was a quality car, even if it is a well-made one.

A new car may end up being less expensive in the long-term because it’s easier to repair. Every part of a car has a lifespan and eventually you will need to replace it. High-end items.

New cars can be cheaper than used ones

Financial pundits give new cars a bad reputation because they assume you will spend your money on something that isn’t affordable.

You might find yourself resentful of the purchase if you do this. It could even lead to financial problems.

A new car is more affordable if it has lower monthly payments and requires less maintenance than a used car. It’s not only about the money you spend. Your emotional well-being is also important, knowing that your car won’t overheat or flake in traffic every Monday morning.

If your budget allows, you can buy a new car.

The pros and cons of purchasing a new vehicle

  • All new parts are covered by the manufacturer’s warranty.
  • Insurance costs are lower because there’s less chance of mechanical failure. However, it is not a guarantee. Check to make sure the car is not high-risk before you buy it. To receive insurance drops, choose cars in the low-risk group.
  • Peace of mind. There’s nothing worse than spending half of the week fixing up the car after you plan a weekend away. Or your spouse having to call your mechanic instead of you. You shouldn’t expect a new car to give you gears. But, if it does, the manufacturer’s warranty will cover it. You know that the car will get you to your destination if you fill it up with gas and do routine maintenance. You can’t say the same about the oldie but-cheapie being sold by a second-hand car dealer.
  • Resale value. Here you can take out your Kelley Blue Book to compare the car that you are interested in buying. You might get a great deal if you choose the right brand. Ramit, our founder has a friend who purchased an Acura Integra for $25,000 It was her car for seven years, and she managed to sell it at half the price. Her new car was an amazing investment.
  • Fuel economy. Fuel economy. Let’s face the facts, technology has advanced tremendously over the last few years. It is worth spending a little more at the pump.
  • Guys, the environment. Driving a car that passes all emissions tests is a good thing. If you don’t want to, you don’t have to buy a Prius. Clean Air Act regulations are used in cars built after the nineties. The benchmark falls each year in order to achieve emission targets for countries and cities. Your sixties gas-guzzling truck may have to be modified to meet current emission standards.
  • It’s that new car smell. It’s both evocative, and sexy. A new car smell is a new car smell.

The cons of buying a brand new car

  • The downpayment. A downpayment of 10% to 20% is required for car loans. This can be quite high if you are looking at a $25,000 vehicle.
  • It is expensive upfront. A new car is costly, no matter how you look at it. An entry-level Chevrolet Spark is not the best choice for a family with six members. To find the right car for you, it is important to budget at least $20,000
  • It may not be possible to afford it. Let’s do some math. We have the 20/4/10 rule . It works this way:
    • 20% downpayment If you aren’t able to make a 20% downpayment for your car, it could be that you aren’t ready. This savings should not be combined with your emergency savings.
    • A 4-year term is acceptable The longer you keep your car, the higher the interest rate. Aim for a term of 4 years or less.
    • 10% or lower of your gross monthly earnings: If the car installment and any other car-related expenses exceed 10% of your gross mensuel income, you may be eating more than you can chew.
  • All the bells and whistles. Expect to be sold to when you purchase a car directly from the dealer. The salesman will want to reach his sales goal, which could mean fancy rims or an impressive sound system. Before you walk into a store, do your research and be clear about what you need. You can get electric windows, satellite radio, leather seating, and whatever else you want.
  • It can ruin your Rich Life. It is time to evaluate your situation. If it is societal pressure, how long will it take to live your Rich Life. If yes, leave Dodge (the dealership).

It’s better to buy used than new.

Sometimes, a brand new car won’t be enough. You should look for certified pre-owned cars that are guaranteed to deliver what you pay for.

The benefits of purchasing a used vehicle

  • It is less expensive at first. A second-hand vehicle is better if you have small downpayments and need to pay monthly installments.
  • This is a great choice for the short-term. A second-hand vehicle might be the best choice if you are looking to replace your car in the next few years or just need a vehicle to fill the gap. Make sure you have enough money for maintenance and services to keep your car in top condition until you sell it.
  • It’s a car you have owned that is still in good condition. Some cars simply retain their value and you won’t lose a lot if it is sold a few years later.
  • Finance is not available to you. You may not be able to finance the car due to your financial situation. If you don’t have the cash to purchase a new car, a used car might be the best option.

There are cons to buying a used vehicle

  • There is no lemon protection. You can return a used car to the dealer if you get a lemon. There could be many problems with used cars, even if you source it from a trusted dealer. You’ll have to live with your vehicle if it doesn’t come with a warranty. A professional in the industry can inspect your car.
  • Fuel efficiency. You’ll be spending a lot of gas if you want the car that drove all the girls insane in high school. Modern engines run on less fuel thanks to modifications.
  • Financability. Your 11-year-old puppy won’t be able to afford financing. To reduce their risk, they may add interest to the downpayment or make a bigger payment.
  • Insurability. Car insurance is about risk. Because of its declining reliability, the older your car is, the more risky it is to insure it. This means that you will pay more for insurance.
  • Unreliability. Unreliability. Your car will be far more likely to break down than a new vehicle.

How to save money when buying a car

Do not just go to a dealership and buy the first car you see. Make sure you do your homework to ensure that your future self will be proud of the purchase.

Buy a quality car and keep it for the long-term

It is a big commitment to buy a car. It may be a depreciating asset which means that its value will decrease over time but it still makes sense long-term. A great car will be more than just a fast car. These are some of the great attributes to be on the lookout for:

  • Serviceability. Research the availability of parts as well as the costs of services. Although some car manufacturers like Toyota and Nissan might be imported, they are easy to maintain and cost-effective.
  • Reputation. What are drivers saying about their cars? Are they getting high ratings on automotive blogs or not? Also, make sure to check the safety rating. You might consider putting off purchasing if it falls below a 5 out of 5.
  • Auto insurance cost. Some vehicles have higher insurance rates because they are more likely to be stolen or have mechanical problems. These vehicles should be identified and viewed from the other side.
  • Resale value. You should look for the most sought-after cars on the certified preowned floor. These cars are well-respected and dealers will be happy to add their own stamp.

Talk to dealers

First, you need to know when it is best to purchase a new vehicle and when it is most convenient to visit a dealership. You should go towards the end of year, when everyone is trying to close the final sales for the year-end commissions. You don’t have to be there for the end of the year.

Dealers will want to dispose of stock in that year as well to make room for the shiny new stock. If you buy in November 2021 you will drive a model 2021. Dealers start receiving their 2022 stock in December, so you can register your vehicle as a 2022 model. You can negotiate a lower price by choosing the 2021 model.

If the dealer tries to force you into something, stand firm. Many dealers will try to sell their stock to you, even if it means driving across town to another dealer.

Enjoy a fantastic interest rate

Before you go to the dealership, you need to know your credit score. Good credit scores are a bargaining chip that can get you a good rate of interest. If you feel that the rate being offered is not as competitive as it should be, it’s time for you to shop around.

A difference of just 2% can make all the difference.

A $20,000 loan for 48 months at a rate 2.39% would cost $438 per month. This monthly payment jumps to $456 at a rate of 4.399%. This is $864 for the entire loan term.

The key to obtaining the lowest interest rates is your credit score

Simple loan available

Avoid shiny finance deals that can leave you confused or even out of your pocket. Sometimes the best option is the simplest. These are some of the most common options:

  • Secured auto loan (simplest). This type of loan protects the lender by allowing them the ability to secure the vehicle. The lien is placed on the car. If you are late on your payments, the lender may repossess your vehicle. This type of loan is the easiest and most affordable. It usually comes with a lower interest rate.
  • Unsecured auto loan. This loan is similar to a personal loan, but because the lender has a greater risk, it tends be more costly.
  • Lease. If you want to own your car for the long-term, this is not an option. Although a lease may be more affordable than an installment, to take ownership of the car at the end, you will need to pay a lump sum. This is not the right option for everyone, and it can be costly and confusing.

Take care of your car

Make sure you have a service plan in place and keep it current. You will be less likely to have costly, avoidable problems like a seized engine. This will allow you to maintain your car for longer and possibly even preserve a high resale price.

The bottom line

A car should be considered a valuable asset. It’s worth taking the time to do the math so you can make sure your money doesn’t go flying. If you do your homework and make responsible purchases, a new car will not be a financial burden.