Should I Buy a New Car? Pros and Cons from a Financial Perspective
on Topics: Family | Personal Finance
When the time comes to replace your vehicle, should you purchase new? From a financial perspective, a new car often means a higher price tag initially, but there are long-term benefits to purchasing a new vehicle that may save you money over time. Here, we breakdown the good, the bad, and the expensive to help you decide if purchasing a new car is the best move for your finances.
Pros of purchasing a new vehicle
- Better Payment Options – Financing a new vehicle is attractive thanks to the plethora of dealer incentives and manufacturing offers out there. New car loans typically have low-interest rates. Combine that with the cash rebates, period of free or discounted maintenance, extended warranties, and steeply discounted protection plans, and purchasing a new car seems like it could, in some cases, make sense. In some cases, you can even pay off your car loan early – an added benefit.
- Less Expensive Repairs and Maintenance – A new car means at least a factory warranty, (and sometimes a dealership warranty, too!). In addition to repairs and maintenance savings, one of the most popular promotions to encourage consumers to purchase a new vehicle is the period of free oil changes, tire rotation, and basic service. With the right deal, you could avoid certain car-related expenses, aside from fuel of course, for a couple of years. Knowing that maintenance and repair costs can be one of the more expensive parts of vehicle ownership, a new car incentive aimed at combating that is appealing.
- Better Gas Mileage – Most of the new vehicles on the market right now boast fuel-efficiency. This has been the trend for the last couple of years, as gas prices rose and ride-sharing and other forms of public transportation became a little more attractive and accessible. Manufacturers strive to develop every new vehicle to be a little more fuel-efficient and a little more environmentally friendly to keep up with the changing priorities of today’s society. Better gas mileage means more money in your wallet, as you can go farther between fill-ups. Vehicles that operate with alternative fuel sources have also gained popularity over the last few years, which means even more savings at the fuel pump – or bypassing the fuel pump entirely!
- Other savings – New cars have the latest technology. While new cars typically cost more to insure, some of the safety features popping up in new cars could potentially mean lower insurance rates down the road, saving you money on insurance after the new car depreciation occurs. Free roadside assistance is another common benefit in new vehicles. This can mean huge savings without having to worry about changing a flat tire or running out of the fuel in the middle of nowhere.
Cons of purchasing a new vehicle
- Expensive price tag – It is no secret that new cars are more expensive than used or leased ones. A new car typically requires a down payment, whether you have the cash to put toward the purchase or if you are using a trade-in to make it happen. Plus, the taxes and registration costs for a new vehicle bear a hefty price tag. While there are certainly benefits to purchasing new, like not having to worry about the vehicle’s history for instance, there is really no way around the cost. The incentives and discounts associated with a new car simply just lessen the blow to your bank account.
- Depreciation – This is probably one of the most prevalent reasons consumers choose to purchase a used vehicle or lease, instead of buying new. It is not a myth that new cars depreciate the moment you drive off the lot, but the amount of depreciation may surprise you. While the rate of depreciation varies by model, a new car generally loses twenty percent of its value upon purchase.
- Higher Insurance Rates – While there are some exceptions, generally new cars have higher insurance rates for a couple of reasons. First, new cars cost more to replace. Next, new cars are typically purchased with a loan. Until you pay off that loan and truly own your vehicle, you will probably be required to carry a full coverage insurance policy on the vehicle. The most comprehensive insurance means a higher cost.
Ultimately, purchasing a new vehicle can be costly, but it can also mean savings in the long-run. Any large purchase is a decision that should be carefully considered.
If you are carrying a large debt load, it may be best to pay it off before making the leap into purchasing a new vehicle. Check out some of the debt consolidation options available in your region. Credit agencies and financial counselors can help you get your finances back on track so you can make large purchases guilt-free.