Deciding to buy a new or a used car

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