The Used Car Sweet Spot

Buying a new car is always a bad decision – financially. It doesn’t matter which brand or make or model. You will always lose money.

It’s just a question of how much.

All new cars bleed value like the Titanic took on water after it hit the iceberg. Even the least-“leaky” ones, from brands with high resale value – Toyotas and Hondas, for instance.

Both make great cars – reliable, well-built, etc. But that’s not the issue.

Depreciation is.

 Even the cars which depreciate less horribly than others – those Toyotas and Hondas – still lose about 20 percent of their value during the first 12 months you own them. If you buy a new car for $35,000 – which is the average price paid for a new car – you can expect to take a $7,000 haircut on the car during that first year.

Not counting the additional money you spent on full coverage insurance (based on the replacement cost of a new car) and property taxes, in states/counties that get into your pocket that way, too.

After six or seven years, that $35,000-when-new car will probably have lost about half its value, $17,500. That’s not a haircut.

It’s a scalping.

If you buy used, you only get trimmed.

Maybe not even that.

There is a sweet spot for used cars – the point at which they’ve depreciated so much they won’t depreciate much more and so are now very affordable – you can probably afford to pay cash – but aren’t anywhere near the end of their days as reliable transportation.

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That sweet spot is generally located about 10 years from new – at which point the average new car will have shed about two-thirds of its original retail value. In our example above, the $35,000 when-new-car will have depreciated by about $23,000 – possibly even more.

You should have no trouble picking it up for well under $10k.

But will you have trouble?

Enter the Fear.

The main reason – after New Car Fever – people sign up for debt servitude by purchasing a new car is the reassurance of the new car warranty. That they won’t have trouble with the car – and even if they do, the repairs won’t cost them anything.

So instead, they pay a fortune for the new car. Plus the insurance and taxes on the new car.

That’s guaranteed “trouble.” Not mechanical, necessarily. But financially, certainly.

It is true the used car will have been  . . . used. This does not mean it will need repairs. It may, of course. But not necessarily.

Read more at EricPetersAutos.com

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