Curious about reasons to never buy a new car?
It can be tough to face.
Maybe you really love that new car smell?
Well now you can buy it in a bottle.
And that’s a good thing, because you probably should never buy a new car.
You know they’re expensive.
Still, once you’re making enough money doesn’t it make sense to buy a car that isn’t used?
Maybe as a personal choice, but not as a financial move.
In fact, when Thomas J. Stanley and William D. Danko researched their book “The Millionaire Next Door” they found that more than 20% of millionaires buy second hand.
For some wealthy individuals this is just one more of the many smart money moves that help them build and preserve their wealth.
Furthermore, CarFax says that cars can lose more than 10% of their value during the first month after you drive it off the lot!
Table of Contents
10 Reasons To Never Buy A Brand New Car
In order to steer you clear away from buying a car new, here are 10 reasons why you should never buy a new car.
1. Newer Almost Always Means A Higher Purchase Price
No surprise here, and we aren’t talking about sticker price alone.
It’s the total expenditures over time that you should consider.
Think about it:
- Car dealer fees
- Maintenancec (like oil changes, etc.)
- And, more
This doesn’t even touch car insurance, sales tax, and other auto purchase-related costs from the start.
Then, there are the car repair costs.
And this is where we bust the myth that a new car makes financial sense because it requires fewer repairs.
You see, when comparing the total costs over six years (which includes maintenance and all of those repairs), Edmonds.com found that buying car that’s three years old beat out buying a brand spanking new car by thousands of dollars.
Saving money is the single biggest reason to buy second hand.
Who couldn’t use a few thousand dollars extra?
So most of the rest of this list details the reasons why you save so much when you buy used or “pre-owned,” as the salesperson will say.
And before you get tempted by the idea that driving a new car somehow provides you with a different, better experience than a used one, consider this:
Even if you start new, aren’t you driving a used car once you’ve driven it a while?
By the way, when we bought our van we paid about $8,000, which was $15,000 less than a similar new model would have cost.
And no, we have not spent anywhere near that much on repairs.
2. You Pay More Interest
How much will you save when buying a used car?
That depends partly on whether you pay cash or finance the vehicle.
Loan rates are normally lower for new car loans, so you might think that’s a reason to not buy used
But because you usually borrow significantly more money for a new car, you normally pay more in total interest charges than if you buy a used vehicle.
Use an auto loan calculator to compare car costs for a specific car loan or personal loan amounts and to find out your loan rate.
If you pay cash you eliminate all interest costs.
That’s what we did when we bought our van.
And for most of us, saving up enough money for a nice used car is probably more realistic than saving up to pay cash for a brand-new car.
3. New Models Depreciate Faster
Still asking yourself if you should buy used?
At some point you’ll have to trade in or sell your car, and that’s when you’ll realize how much value your car has lost.
When Edmonds.com did their comparisons, they calculated the remaining value of each vehicle at the end of six years.
Not surprisingly, depreciation is greater with new models — a big part of the extra cost.
According to Carfax.com, a new car loses about 20% in value the first year, and some can lose up to 50%.
On average the depreciation is 60% for the first five years.
Depreciation does slow as the years go by, but in any case, if you buy a cheaper used car there is less total value to be lost.
A $30,000 car will probably depreciate at least $6,000 the first year according to Carfax.com, and possibly as much as $15,000.
In either case, that’s more than the depreciation our $8,000 minivan has suffered in the entire three years we’ve had it.
4. You Pay Higher Taxes and Licensing Fees
Most states have sales taxes and registration fees for any car purchase.
These can be significantly higher for new versus used, mostly because of the price difference.
It’s easy enough to understand the higher sales tax.
Whatever the rate is, if you pay twice as much for a new car versus a used one you’ll typically pay twice as much in sale’s tax.
But most states also base registration fees on the vehicle value.
For example, if you live in Santa Monica, California and you buy a brand new car for $25,000, your total taxes and registration will cost you $2,515, according to the DMV registration fee calculator.
A used vehicle bought for $12,000 will cost you $1,241.
That’s still a lot, but it’s a savings of $1,274 (not to mention the $13,000 you saved on the sticker price).
5. You’ll Pay Higher Insurance Rates
Normally second hand cars are cheaper to insure than newer ones, because the insured value is lower.
Allstate insurance says you’ll save an average of $756 annually when buying a used one.
Of course the model matters too.
Some are just plain expensive to insure, whether new or used.
So to save even more money take a good look at a list of the least and most expensive cars to insure before you go shopping.
6. You Have to Fully Insure Brand New Cars
There is another way to lower insurance premiums on a used vehicle.
It has to do with the fact that you might be able to save enough to pay cash for a cheaper second hand car, but not a more expensive new one, and that leaves you with an additional money-saving insurance option.
You see, when you borrow to buy a car, lenders require collision coverage.
But when you buy a car for cash (and if you can afford a possible loss in the case of an accident), you can drop the collision coverage altogether and pay much lower premiums as a result.
We don’t carry collision coverage on our van, saving us hundreds of dollars annually.
Without a lender to dictate what kind of coverage we have to buy, we’re also free to opt for lower liability limits to lower our premiums further (I’m not recommending this, but it is an option).
7. A Brand New Car Limits Your Choices
Let’s suppose you have to keep your vehicle purchase under $20,000.
In that case you can’t buy a new Mercedes-Benz C-Class, because they start at just over $41,000 before you add options.
In fact, there aren’t many new models you can buy for less than $20,000.
Fortunately, by looking at used models, your options open up immediately.
In fact, if you would like a Mercedes Benz C-Class, but can’t afford a new one, consider a 2009 model.
It makes the Autobytel.com list of the most luxurious used cars you can buy for under $20,000.
Or consider this writer’s example.
My wife and I could have bought a brand new car, but we would never go into debt to buy a depreciating asset, so with our cash we would have been stuck with a new but small car that couldn’t be used for camping or carrying furniture.
Instead we bought exactly what worked best for our needs.
In other words, buying used allows you to upgrade the kind of cars you buy, giving you many more options regardless of how much you have to spend.
8. You Worry More When You Buy New
When I lived in Colorado I sometimes saw drivers of newer 4-wheel-drive trucks avoiding scenic mountain roads because they worried about a scratch or two.
That’s just sad.
What’s the point of having 4-wheel-drive if you can’t have any fun with it?
Meanwhile I let the branches rub against our van on those narrow dirt roads without concern.
The new scratches just blended in with the old.
Let’s face it; when you have something new and perfect you’re worried about any little thing that might damage it, right?
When buying a new car you might also worry more about the next item on our list…
9. New Cars May Be Targeted By Thieves
Not all cars are at more risk of being stolen.
But it’s a safe bet that our ten-year-old minivan is not at the top of any car thief’s to-do list.
Of course the probability of being stolen also depends on the condition of the car and what type it is.
A list of the most-stolen vehicles will tell you which models are most likely to be targeted by thieves.
Consider buying less-desired vehicles if you live in a high-crime area.
10. Used Cars Can Be More Reliable
Low miles doesn’t always equate to being more reliable, and this will seem counter-intuitive. How can second hand models be more reliable than new ones?
It has to do with the fact that some car models are just better from day one, but you can’t know that until they have been around a while.
Let me explain further…
The number and severity of mechanical and other problems varies by model.
And if you look at the ratings in Consumers Reports’ Used Car Buying Guide you’ll notice that even the reliability of the same model can become much worse from one year to the next.
The important point is that because they are based on real owners’ reports, these ratings become more meaningful and accurate after a number of years.
Look at that guide and at a glance you can see the rows of black marks that tell you to avoid certain cars.
In other words, with the help of a guide like this you can choose a used car that is proven to be reliable, instead of taking your chances with a brand new car.
By the way, if you don’t subscribe to Consumer’s Reports, you can find their car buying guides in most local libraries.
They list cars by model name and year, with ratings for everything from brakes and electrical systems to paint quality.
Advantages and Disadvantages of Buying a New Car
- Low financing rates
- Extended warranty
- New previous owners
- Known vehicle history (virtually none since it’s new)
- Limited choices
- Possibly more targeted by thieves
- Higher cost usually
- Low mileage
- More expensive (probably the single worst disadvantage)
- Quick depreciation
- Auto insurance costs
- Higher tax and other costs
- Difficult to put on a credit card
Is It Worth Getting A New Car?
For those that buy brand new cars it can be a very important financial decision. Furthermore, buying used comes with a lot of advantages along with a sound peace of mind.
Let’s recap on the 10 real reasons on why not to consider buying a new car.
- New models cost more with limited choices
- You pay more interest
- New cars depreciate faster
- Higher taxes and registration fees
- Higher insurance rates
- You have to fully insure new cars
- A new car limits your choices
- You worry more when you buy new
- New models may be targeted by thieves
- Used cars can be more reliable
- You save a lot of money buying used
And this doesn’t even cover negative equity.
Negative equity means the value of your car is less than your balance.
How does this impact you?
First, if you happen to get into a car accident and your car is deemed a total loss, you could end up in a bad spot.
For example, if your Ford Explorer is valued at $20,000 and you owe $25,000, you have $5,000 in negative equity.
Because insurers typically offer you a settlement equal to the vehicle’s value, you’ll be left with $5,000 on the auto loan.
How do you think it will feel to pay money for a vehicle that you don’t have?
Plus, finance companies rarely re-amortize your loan on a lower balance caused by a total loss.
You’ll be left paying your full car payment for a vehicle that you no longer own.
Or, if you go to trade in your vehicle with negative equity, dealerships typically roll the excess (or $5,000 in this example) onto your vehicle purchase but, sometimes depending on the amount you’re negative, they can’t!
So, if you’re trying to upgrade your sedan to an SUV or minivan for your growing family, you might be stuck because the car dealer won’t absorb the negative equity on your trade-in vehicle.
This means you go into the purchase with instant negative equity.
While this can happen with new and used vehicles, it is more likely with newer vehicles that depreciate so fast.
Consider this when you make your car purchase decision.
You can also buy a report on a vehicle’s history from an online service like CarFax.com.
In short, don’t make buying a car one of your worst financial decisions. Keep the extra money and go used.
Do you have any reasons to never buy a new car or reasons to buy a car that’s a few years old? Let us know in the comments below!