Does it Make Financial Sense to Buy a Brand New Car?

By Cory Maki Cory Maki has been verified by Muck Rack's editorial team
Published on September 16, 2022

Individuals who are buying a new car would be wise not to under evaluate the significance of this purchase. Similar to buying a property, a car is something which will impact personal finances for years. Though not quite on the same level of a home, it’s still important to evaluate this decision from a similar angle. 

A major question to ask here is whether it is best to purchase a car brand new or instead, opt for a second hand vehicle. There are numerous factors that should be included in your assessment. 

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The Depreciation Factor

First, let’s explore the issue of depreciation. Cars depreciate rapidly once purchased. Indeed, they will lose most of their value in the first three or four years after they have been purchased by a new owner. This is important to keep in mind if you are purchasing a second hand vehicle. 

The problem with depreciation is that it means a significant amount of money will be lost in a future sale. It is rare to profit when selling a car that you have used and owned. Instead, you will likely suffer a significant loss. 

Why then, would buying a new car be the right choice from a financial perspective. The issue that you must contend with is maintenance. New cars are unlikely to need much maintenance within the first five years of purchase. Particularly, if you are completing a low number of miles. Some dealers will also provide maintenance services as part of an extended warranty. Once the warranty runs out, you can then sell the car and use the money to purchase another vehicle. Do note though that you will still be selling at a loss.  

Big Benefits Of Buying A New Car 

There are of course benefits of buying a new car. For instance, it is possible to get a vehicle with the latest technology included. This too can be an important financial benefit. Technology can make cars far safer. For instance, assisted-driving technology can prevent accidents on the road which could cost a fortune in repairs or cause your insurance premium to climb through the roof. 

Newer cars may also be more eco-friendly and therefore cost less in fuel. You could even consider purchasing an EV. An electric vehicle could be the ideal purchase in a world where fuel costs are at worst constantly rising and at best unstable. 

A new car should also cost you less in maintenance over the first few years. However, it’s important to be aware that this won’t always be the case. It depends on numerous factors including your driving habits. Fast drivers and those who break suddenly are more likely to incur significant maintenance costs that may not be covered within a fixed warranty policy. 

It is also recommended that vehicle buyers check the reviews of different car models. Some are considered to be far more reliable compared to other alternatives. However, a reliable car can also come with a higher price tag. 

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Can You Afford A New Car? 

If you have decided that a new car is right for you, you should consider whether you can afford it. It’s possible that you have enough money saved to purchase a new vehicle outright. More expensive vehicles will mean that you need to save up to sixty thousand. That’s a lot of money for anyone to have available. Particularly when staring down a cost of living crisis. 

For this reason, it’s common for people to buy cars on finance. Finance will ensure that you can borrow the money for a car through a loan and then pay it back over an extended period. Do be aware that the cost of this type of contract will often come with a high amount of interest. You should use a car finance calculator to find out exactly how much you will need to pay for your vehicle. Contracts can stretch over five years. If you are taking on a contract like this, consider how many miles you will be travelling each year. You may find that the car becomes too expensive to maintain towards the end of the contract. This can be the case if you take a contract for five years and are travelling more than 20,000 miles per year. 

There are also lease contracts. Do note that these do not provide you with any ownership of the vehicle. You will need to return the car at the end of the lease and keep it in a good condition. 

Buying A Used Car – The Right Way 

Have you decided to purchase a used car after weighing up your options? There’s no harm in taking this step as long as you purchase it the right way. Remember, if there are serious problems with the vehicle, then it’s going to end up costing you more than you would need to spend on a new vehicle. 

To avoid this, you should check the car carefully. You may even wish to take an expert who has experience with older vehicles. This is something that you can do and if a dealer has a problem with it, they’re probably trying to hide something. 

You should also check the reviews of a dealer that you are buying the car from. If you are purchasing a vehicle from a private seller, make sure that you take the car for a test drive. You should never purchase a car without checking how it handles and exploring issues with wear and tear. 

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It’s clear then that there are several factors to weigh up and keep in mind when you are debating whether or not to purchase a car brand new or instead opt for a second hand vehicle. By weighing up all the factors, you can ensure that you make the right decision for your finances and your future situation. Remember, if you are buying a used car, you must check it carefully. If there are underlying issues, then it can cost far more than you would pay for the same type of vehicle brand new. 

By Cory Maki Cory Maki has been verified by Muck Rack's editorial team

Cory Maki is a former Staff Editor and the Business Development Manager at Grit Daily.

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