Considered a luxury for most Americans, new cars have become a necessity for many people who enjoy driving in a sophisticated vehicle that is shiny and shows off a bit of status. However, with the economic downturn, fewer people are able to afford the high interest rates and monthly payments for new cars that only continue to increase in price, now at an average of $30,500. Used cars are now increasing in popularity for the benefits and reliability that they offer for different budgets.
Not only do used cars cost less than brand new ones, but they also do not depreciate the same way that new vehicles do. Once driving the vehicle off of the lot, the car loses value and continues to depreciate. Most depreciation happens in the first year, losing up to 20 to 40 percent of its overall value. Eventually, a three-year old car can only be worth 80 percent of its two-year value. Most financial experts recommend purchasing a used car model that is at least two years old simply due to the savings involved.
With median household incomes earning just $50,502 annually in America, a monthly payment on a single vehicle is just not within reach or practical for many households. Increasingly, new car purchases are financed for 72 months or longer, adding thousands of extra dollars for the auto loan. While this does help lower the payments, it also makes it likely you will owe more than the car is worth for 3 years or more. Being “upside down” in terms of equity makes it very difficult to purchase that next vehicle before you pay 5 to 6 years on your current vehicle. When you purchase a used vehicle it’s more manageable with less long-term risk involved and allows buyers to save more for emergency repairs and maintenance needed on the vehicle.
Although many people desire new cars for the alluring warranties and fresh interior smell, it comes at a cost; higher depreciation, more interest expense, longer terms. Buy a quality used vehicle and you can avoid all of these pitfalls.