A shiny new vehicle with single digits on the odometer is tempting, especially when dealerships promote big discounts or low interest rates. However, there are many reasons why it is oftentimes better to go the used vehicle route or- better still-to hold on to your current car for longer.
You can't use the reliability excuse. According to Bankrate.com editor Autumn Caliero Giusti, cars manufactured over the past 15 years are built dramatically stronger than vehicles of the past. Whereas topping the 100,000-mile mark was formerly a death sentence for vehicles, auto mechanics nowadays see many 100,000-plus cars for nothing more than simple routine maintenance.
"When properly maintained, today's vehicles should easily go well past 100,000 miles, and many could reach 200,000 miles without a major breakdown. When you consider how much you can save by buying used, you'll come out ahead even if you have to make some repairs down the road," notes LearnVest contributor Tara Struyk of GoBankingRates.com.
Opting to keep your current vehicle is another advantage that can withstand the test of time; if the vehicle is paid off, you're looking at a free ride, at least in terms of the auto loan.
New cars come with new expenses. Thanks to the increased longevity of new vehicles, you will have fewer maintenance bills to worry about. With a new car, however, you are guaranteed to have extra expenses right off the bat. Edmunds.com senior consumer advice editor Philip Reed lists sales tax, registry costs and documentation fees as the biggest offenders. Furthermore, many new cars specify you must use premium gasoline, which, as the name implies, costs a premium price.
Insurance prices vary with the age of the vehicle. One of the biggest expenses associated with a new vehicle is insurance.
"Car insurance is based in part on the value of the vehicle. Newer cars tend to cost more to insure because they have newer parts and, as a result, would cost more to repair after an accident," Giusti says.
Depreciation is expensive. In fact, it's one of the biggest expenses a vehicle owner will have. Edmunds.com states that the average car loses 15 percent to 25 percent of its value each year for the first five years. On the plus side, once the car is five to seven years old, it has already lost all the value it is going to lose.
"In other words, new car buyers are paying a huge premium simply because the car is newer-not necessarily better-than a car that's a year or two older. That's just bad value," Struyk says.
Future borrowing opportunities could take a hit. A portion of your credit score is based on your debt obligations, which influence interest rates, among other things. Additionally, lenders are a bit more conservative in recent times, so they may be reluctant to approve you for more credit opportunities if you have just financed a sizable purchase.
For all of the above reasons, it simply makes the most sense to keep a car for as long as you can while it is still reliable, instead of spending a large chunk of change on a brand-new vehicle. Regardless of what you choose to do, let us help you with the financing.