| What do you really get from a new car? Well, | | | | the balance due on the loan. In |
| there’s that new car smell. (It also | | | | dealer’s terms, you’re upside |
| comes in a can.) And the sticker in the | | | | down. And you’re vulnerable. Should |
| window, which tells everyone you just bought | | | | your car be involved in a serious accident, |
| a new car. (Are you really that desperate for | | | | and the insurance company decides it’s |
| approval?) And don’t forget the fun of | | | | a “total loss†– |
| looking through the driver’s manual | | | | it’s been totaled – your payout |
| for the first time to learn about all those | | | | from insurance will be less than what you owe |
| knobs and buttons. | | | | on the loan. You’ll get a check from |
| | | | your insurance company, but you’ll |
| Monthly Payments | | | | still owe money out of pocket to pay off the |
| | | | car loan. Ouch. |
| You’ll also get a monthly reminder of | | | | |
| your shiny, brand-new car: a payment notide | | | | Now, that’s a worst-case scenario. But |
| for your car loan. The average price of a new | | | | keep in mind that no matter how good your |
| car passed $30,000 last year and is headed | | | | experience is with a new car, it will be |
| even higher. Do you have $30,000 in cash to | | | | expensive. There aren’t just the |
| buy a new car? Or $20,000? Neither do I. | | | | new-car payments with which to contend. |
| Lower price is the most important and most | | | | There’s new-car auto insurance. Lots |
| immediate benefit of buying a used car. | | | | more than insurance on a used car. That |
| | | | renews every year. |
| Depreciation is Not Your Friend | | | | |
| | | | Other New Car Expenses |
| New cars depreciate. Their price is always | | | | |
| going down. The moment you drive off the | | | | Some carmakers will void parts of the |
| dealer’s lot in that new car, it | | | | warranty if you don’t have your car |
| probably loses 10 percent of its value. Some | | | | serviced at the dealership. There may also be |
| lost as much as as much as 20 percent. | | | | other dealer incentives you don’t get |
| That’s an immediate loss of $6,000 | | | | if you haven’t had the car serviced at |
| – on average. Some cars will incur | | | | the dealership. I made the mistake of taking |
| greater initial depreciation. The personal | | | | my car to the dealer recently for service. |
| finance experts say to buy appreciating | | | | (My daily driver is a ’98 Audi A4 1.8T |
| assets – like houses, whose long-term | | | | Quattro.) The labor rate was $114.98 an hour. |
| value is likely to increase – and | | | | That’s right -- $114.98, not $115. |
| lease depreciating assets, like cars. | | | | Somehow that made it even more galling. I |
| | | | mean, that’s more than I pay my |
| There’s a hidden danger in all that | | | | therapist. (Who knows – maybe |
| depreciation. Most new cars lose a lot of | | | | mechanics will soon start working 50-minute |
| their value in the first year. Then, the | | | | hours and taking the entire month off to go |
| depreciation curve flattens out, and the car | | | | to the Hamptons.) |
| loses value more gradually. But you’re | | | | |
| paying off the balance of your car loan with | | | | The point is, you’re locked into a |
| the same monthly payment over the life of the | | | | high-cost structure with a new car. |
| loan. So the loan balance decreases in a | | | | |
| straight line. | | | | Used cars are cheaper – and |
| | | | they’re cheaper to maintain. |
| The Danger of Being "Upside Down" | | | | That’s especially true if you buy a |
| | | | carefully researched, thoroughly inspected, |
| During that high depreciation period, the | | | | ready-to-drive used car. |
| market value of the car could be less than | | | | |