“Should I buy a new car?”
If you asked almost every personal finance pundit that question, they’ll give you a bunch of reasons why you should buy used instead.
Our founder, personal finance expert Ramit Sethi, disagrees.
Used cars can be a good way to go. But to apply a broad rule that “used is the best” is short-sighted. In fact, Ramit thinks there are many more reasons why people should buy a new car than used.
It will depend on the type of car you buy, and the condition you buy it in. That said, if you’re going to buy a decent make that’s in really good shape, you might land yourself a bargain.
However, here’s the rub. Do you know enough about cars to know whether you’re buying a hole in your pocket? Even if it’s a good make, you can’t be sure that the previous owner didn’t do donuts in the Best Buy parking lot after dark.
In the long run, a new car might end up costing less because there’s less to fix. All car parts have a life span and eventually, you’re going to look at replacing things. Expensive things.
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New cars get a bad rap from financial pundits because the assumption is that you’re going to spend your money on something you can’t afford, doesn’t make sense, and worse, is over the top.
If you’re going to do that, you might end up resenting the purchase. Even worse, it might land you in financial trouble.
A new car is cheaper when it costs you less in installments and maintenance than a second-hand car. But it’s not just about the actual money spent. It’s also about your own emotional wellbeing knowing your car isn’t going to overheat and flake out in traffic every Monday morning.
If you’re asking, “Should I buy a new car?”, the answer is yes if it meets your needs and fits within your budget.
Sometimes a new car isn’t worth it in the long haul. Look for a certified pre-owned car that ensures you’re getting what you’re paying for.
In order to make sure that buying a new car is worth it, don’t just walk into a dealership and purchase the first car that catches your fancy. Do your research to make sure future you will be proud of your purchase.
Buying a car is a serious commitment. While it may be a depreciating asset, which means that the car value decreases over time, it should still make sense in the long run. A good car will have more than just great horsepower and top speed. Great attributes to look out for include:
First off, know when to buy a new car and when is the right time to go to a car dealership. Try towards the end of the year when everyone’s trying to close those final sales for their year-end commissions. But that’s not the only reason you want to go towards the end of the year.
Dealers will also want to get rid of the stock for that year to make way for the shiny new stock. This means that if you buy in November 2021, you’ll drive a 2021 model. However, dealers start getting their 2022 stock in December which means you can register your car as a 2022 model. By opting for the 2021 model, you can negotiate a lower price.
Stand firm on this, if you feel like the dealer is trying to strongarm you, walk away. There are plenty of dealers trying to get rid of their stock, even if you need to drive across town to another dealership.
Before you even head out to the dealership you should know what your credit score is. A good credit score is a great bargaining chip for a good interest rate. When you feel like the rate offered isn’t as good as it can be, then it’s time to shop around.
A difference of 2% can make a tremendous difference.
For instance, a $20,000 loan over a period of 48 months at a rate of 2.39% will cost around $438 per month. At a rate of 4.39%, that installment jumps to $456. That is $864 over the loan period.
Your credit score is at the heart of securing the lowest interest rate possible.
Don’t bother with shiny finance agreements that leave you confused and possibly out of pocket. The simplest option is often the best. Some of the more common options are:
Take out a service plan and make sure to keep those services up to date. The better you maintain your car, the less likely you are to run into expensive, avoidable issues such as a seized engine. Not only will this allow you to keep the car longer, but possibly also retain a good resale value.
A car should be viewed as a worthy asset and as such, it’s worth doing the math to make sure your money is not just flying out the exhaust. A new car is not the financial burden it’s made out to be when you do the homework and buy responsibly.
Want to know more about rocking your finances? Ramit’s book, I Will Teach You To Be Rich, covers personal finance topics you want to know without the dull budgets and zero lattes. Get the first chapter for free below!
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It depends on you and what you want. It can absolutely make sense to buy an expensive new car over the long term because of the total value concept. Save even further on a new car by taking advantage of end of the year deals as well.
Yes, depending what you buy. The total value of a new car can be far greater than a used car.
Some of my favorite reasons for buying new are: the experience of owning a brand new car, great loan deals (if your credit is good), and potentially greater total value.
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