Why You Should Buy a Used Car Over a New One

There are several good reasons why you should buy a used car over a new one. There are two reasons in particular that I find very convincing.

Depreciation of Value

Depreciation is the difference between the original cost and the current value over time. This is the most convincing factor from a financial standpoint as to why you should buy a used car.

The moment you drive your fancy new car off the lot it instantly loses approximately 9% of its value. In the first year, it will have lost 19% of it’s value. This rate of depreciation continues on but tapers off each year. Astoundingly, after 5 years, your brand new car will have lost 60% of it’s value.

Let’s look at a fictional example:

Bob buys a brand new Honda for $30,000. He drives it home and quickly checks the Kelly Blue Book value of his new car. Surprisingly, he finds out his car is already worth much less than what he paid at only $27,300. Each year Bob rechecks the value only to find it is dropping rapidly. The first year the value drops to $24,300. In 5 years his car is worth a mere $12,000. Here is a year by year breakdown:

Time Frame Value
Year 1 $24,300
Year 2 $20,700
Year 3 $17,400
Year 4 $14,700
Year 5 $12,000

I suggest buying 3 years old since the car will have already lost the majority of it’s value in that time frame. Plus, a 3 year old car will have nearly all of the bells and whistles that a brand new car has.

Better and More Information

A used car will come with a ton of reliable information that a new car won’t have. This information can be critical to buying a vehicle that will last.

In the case of new model year vehicles this information is especially valuable. A brand new car will not have any track record of reliability or if it even performs as advertised. There is a risk that the car is just a dud. However, if 3 years pass before you make the purchase you now have 3 years worth of readily available information. Does the car have a history of breaking down often or is it highly rated and reviewed?

Have you purchased a new or used car? What were your reasons for your choice? Let us know in the comments.

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