| What do you really get from a new car? Well, | | | | you’re upside down. And |
| there’s that new car smell. (It also | | | | you’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?) And | | | | loss†– it’s been |
| don’t forget the fun of looking through | | | | totaled – your payout from insurance |
| the driver’s manual for the first time | | | | will 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 Payments | | | | company, but you’ll still owe money |
| You’ll also get a monthly reminder of | | | | out of pocket to pay off the car loan. Ouch. |
| your shiny, brand-new car: a payment notide for | | | | Now, that’s a worst-case scenario. But |
| your car loan. The average price of a new car | | | | keep in mind that no matter how good your |
| passed $30,000 last year and is headed even | | | | experience is with a new car, it will be expensive. |
| higher. Do you have $30,000 in cash to buy a | | | | There aren’t just the new-car |
| new car? Or $20,000? Neither do I. Lower price is | | | | payments with which to contend. |
| the most important and most immediate benefit | | | | There’s new-car auto insurance. Lots |
| of buying a used car. | | | | more than insurance on a used car. That renews |
| Depreciation is Not Your Friend | | | | every year. |
| New cars depreciate. Their price is always going | | | | Other New Car Expenses |
| down. The moment you drive off the | | | | Some carmakers will void parts of the warranty |
| dealer’s lot in that new car, it probably | | | | if you don’t have your car serviced at |
| loses 10 percent of its value. Some lost as much | | | | the dealership. There may also be other dealer |
| as as much as 20 percent. That’s an | | | | incentives you don’t get if you |
| immediate loss of $6,000 – on | | | | haven’t had the car serviced at the |
| average. Some cars will incur greater initial | | | | dealership. I made the mistake of taking my car |
| depreciation. The personal finance experts say to | | | | to 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 increase | | | | labor rate was $114.98 an hour. That’s |
| – and lease depreciating assets, like | | | | right -- $114.98, not $115. Somehow that made it |
| cars. | | | | even more galling. I mean, that’s more |
| There’s a hidden danger in all that | | | | than 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 depreciation | | | | working 50-minute hours and taking the entire |
| curve flattens out, and the car loses value more | | | | month off to go to the Hamptons.) |
| gradually. But you’re paying off the | | | | The point is, you’re locked into a |
| balance of your car loan with the same monthly | | | | high-cost structure with a new car. |
| payment over the life of the loan. So the loan | | | | Used 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 market | | | | carefully researched, thoroughly inspected, |
| value of the car could be less than the balance | | | | ready-to-drive used car. |
| due on the loan. In dealer’s terms, | | | | |