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New Vs Used Car

Buying a car must be one of the most difficult decisions you can make. And a side decision that you need to think about is what kind of car you’re going to buy and even more important whether you’re going to buy it new or used.

We all wish to have something new and shiny and fresh on the market. That is understandable. It’s new and untouched, fully equipped and ready to go. But you should know that the moment you purchase it you are left with a car that looses $500 to $1000 just by exiting the dealership and over time your car will slowly depreciate and find out that in 5 years your car may worth 70 % less.

The worst possible solution is paying for a new car with a loan (except if you have a REALLY good offer) because of the same depreciation. Things will go upside down, you will be paying in the long run, more than the car’s original value, while the car slowly depreciates making selling it an inconvenience because you may get less than half of what you paid for. Keep in mind though that not all the cars depreciate as fast.

Take for example a sweet looking Chevy or other “symbol” cars and you’ll see that their value is well preserved over time. On the other hand try the same thing with a Toyota Prius and see the difference. Therefore a good advice is heading directly for Kelley Blue Book and find out the depreciation value of the car you’re interested in.

There are of course advantages to heading for a new car. One of them is the lower loan rates when the loan is aimed at purchasing a new car. The difference is not very noticeable since we’re talking about 3 % maximum, but if you have an excellent credit, the major advantage is that you may qualify for a special form of auto loan with 0% interest from the dealership. The offers with 0% restricted to new cars only and it would mean for you the deal of your life.

Another good option for new cars is leasing. When you lease a car you practically enter an agreement with a dealership for “renting” the car. You pay a monthly lease which is a lot cheaper than a loan because leasing is a bit different. Let’s take for example a lease for a $20000 car. That car is expected to loose $7000 in depreciation over three years. The coolest thing is that you pay a monthly fee for the depreciation ($7000) and not for the car’s value of $20000. You do the math.

The only downside to this is that you assume a risk when leasing since you have to respect some parameters and do regular maintenance on it. For example any damage sustained by the car or mileage over the amount established will be paid by you. The silver lining is that at the end of the lease you may either return the car and get another new one, or purchase it.

2009 Audi A4

With purchasing a used car, the considerable drop in value father the first year is avoided. The depreciation is noticeably smaller, about $3000-6000 after the first year. Let’s take for example purchasing a 2006 Ford Taurus will cost you about $20000. According to the Kelley Blue Book a 2005 Ford Taurus can be purchased with $15000, meaning $5000 savings for only a year older car. Think about it, a new Honda may be the price equivalent of a two years old Audi.


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