In reality, the answer is simple:
- What are the needs and wants you’re trying to satisfy?
- Which option meets those needs for the lowest total, lifetime cost?
Choose the option that fits best.
But, of course, there are as many ways to answer those questions as there are people in the world.
Regardless of the decision you make, here are some ideas for you to consider to lower the total cost and enhance your results:
- The thought process for choosing a used car vs. a new car is no different than the decision applied to any other item that you own. We should consider new vs. used for every item that we buy. Cars are a bit unique though because of their relatively high purchase price and also because we have such an easily accessed and abundant used car market.
- We have an incredible used car market in the USA because:
- Tons of people regularly buy new cars while their old cars have lots of useful life left. If the supply weren’t so plentiful, the recommendation to “buy used” would be more difficult to implement.
- Vehicles are built to a high quality with a long potential life span.
- Most vehicles are lightly used. Long highway miles on paved roads don’t take a huge toll on a vehicle. If you were in a different situation, it would be different.
- For most people, the highest cost of car ownership is depreciation.
- Depreciation is calculated like this: Initial Purchase Price – Residual Value When Sold = Depreciation (your actual cost)
- To make an intelligent buying decision, carefully consider your actual needs and wants and consider the options that will fit those needs and wants.
- Think carefully about your opportunity cost. If you can save $10,000 of total cost over the lifespan of ownership, what could you spend that money on? For example, would you rather have a cheaper car and a motorcycle or just a more expensive car? Would you rather have a cheaper car and an extra $500,000 in 40 years or just have a more expensive car? The decision is up to you.
- Consider all of the costs of ownership:
- Depreciation expense
- Fuel/energy costs
- Downtime expenses (in case of repair)
- Financing costs
- Maintenance/repair costs
- Insurance costs
- Other expenses (parking spots, garage space, car wash expense, etc.)
- There are ways to mitigate each of these categories of expenses. The best situation is to find an optimized approach in each category.
- Since the biggest consideration between used and new is depreciation, here are some ideas to minimize depreciation:
- Buy a less costly vehicle. (20% depreciation on a $40,000 vehicle is a loss of $8,000 in one year. 20% depreciation on a $20,000 vehicle is a loss of $4,000 in one year.)
- Get an up-front deal. (Buy the same vehicle but buy it at a more opportune time for less. Be out of sync with the general marketplace.)
- Buy a vehicle that depreciates at a slower rate. (Look for a unique segment where you can use a vehicle that maintains its value more than the general market.)
- Take better care of your specific vehicle so that it depreciates more slowly.
- Keep your vehicle for longer. (No matter whether you buy used or new, just keep your vehicle for longer so that the impact of depreciation is lessened.)
- If you want to give a shot at havine a one-car household isntead of a two-car household, consider supplementing for your transportation needs with Uber or Lyft.
Enjoy the show!
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