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