January 15, 2015

shouldIfinanceanewvehicle

Is financing a brand new car the right decision for you?

Our answer is plain and simple: no. Vehicles are not real assets, they are expensive wealth suckers, and if purchased on credit -- pure liability.

A new car loses around 11% of its value the moment you drive it off the lot. That means your debt just got even more expensive. If you had to sell your vehicle right after purchasing, it would already be worth less than your loan. And if not, you are paying interest on a loan larger than the value of your purchase, that is not sound finance.


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Source: How Fast Does A New Car Lose Value

What are you really paying for when you buy a new vehicle? The status symbol? The bells and whistles like leather seating, gps, and a sun roof? Better fuel efficiency?

If you want a status symbol car to impress others, ask yourself this: you would rather look rich, or be rich? A high end car may be of better quality, but will be more expensive to maintain and insure as well as more expensive to finance, which more than offsets the quality value.

The bells and whistles are making your car loan an even worse financial decision. You are paying for non-essential features, whose resale value does not match their cost on credit plus interest. As for fuel efficiency, the savings in gas is going to be negligible compared to the thousands you are losing when purchasing a brand new car on credit.

So what do we recommend? If you need a new vehicle right away, get an older model for cheap that you can buy with cash, then begin stashing away savings for a newer car. When you have saved enough, buy a vehicle that’s a few years old. That way you are not paying a premium for a new car, and you are not paying interest on another debt either.

Going forward, take excellent care of your vehicle and drive it for as long as possible, at least until you can afford a newer one with cash you saved while driving a loan-free car.

If you don’t need a different car immediately, start a savings plan right away to save up for your next vehicle so that you can pay with cash. And consider buying a newish car that has already dropped its "new" price tag for a much better value.