According to Experian, Americans now owe a whopping $1.07 trillion dollars in vehicle loans. We love owning new vehicles and the numbers prove it. The perfect shiny paint job, the latest gadgets and features, or just the scent permeating from a new car can make the temptation to buy new hard to avoid. However, with the average new vehicle loan reaching a record high of $30,534, and the average monthly payment for a new vehicle reaching $509 we might want to rethink our love affair with new automobiles and be satisfied with the cost benefits of buying used.
You Don’t Have to Worry About Your Car Sinking in Value
According to Edmunds, a new car will drop in value considerably more in its first year than the second, third and fourth year combined. Even buying a car a year or two older will save you a considerable amount of money when you take into account the steep depreciation occurring after a new car leaves a dealer’s lot. How to determine what car you can afford will not only be determined by your car payment, but the overall cost of the car when factoring in your down payment, interest rate, and term of your loan. It can be eye opening to see just what that new car will cost you. When crunching the numbers you need to determine if a new car is really worth what you will pay for it in the long run.
Used Cars are Typically Cheaper to Insure Than New Cars
While safety features on new cars can bring down insurance rates, in most cases their higher market value usually means a higher premium than a car a few years older. Also, because the depreciation is so drastic the first year, car owners might add the cost of gap insurance to the overall costs of owning a new vehicle. In the event of an accident, gap insurance protects the owners from paying the gap that exists between what they owe on their vehicle and the actual cash value of the vehicle. Used car owners typically don’t need to add this coverage as they are not usually upside down on their auto loans.
You Have More Choices
With online sales, and countless sites offering information on nearly every make and model of automobiles to choose from, along with customer satisfaction feedback and comments, you can research and pinpoint the type of vehicle you want to purchase. Drawing from the information from automobile research companies and those providing vehicle history reports, you can make informed and cost effective decisions when purchasing used.
You Won’t Accumulate Needless Debt
According to ValuePenguin, the typical term length for auto loans is 68 months, with loans of 72 and 84 months becoming increasingly common. With the annual percentage rates on vehicle loans ranging from 3%-10%, the interest combined with dealer’s fees, sales tax, and insurance makes the real cost of owning a new vehicle far greater than the sticker price. You can get an idea of how adding extra money toward your principal each month can really save you with our auto loan repayment calculator.
Keep in mind that adding any extra money in your payment can make a big difference in the term of your loan. Purchasing a reasonably priced used car with cash, or financing through a short-term loan, can give you options to use the money saved to pay down debt, save for retirement, or purchase an asset that appreciates in value over time.
While the thought of purchasing a new car can be captivating, the benefits need to be weighed with the higher costs of automobile insurance coverage, the depreciation of a new car, and if financing, debt accumulation from a vehicle loan. You may find that a thorough evaluation of the total costs may sway you to buy used.
What experience in buying a new or used car sold you on your choice?