If you are spending more on car repairs than you budgeted for and have an older model car, it could be time to upgrade to a new model. But with so many different makes, models and price points, where do you start when you are thinking about buying a new car?
Before you rush right out and buy the first car you see on the lot, there are at least three things you should consider before buying a new car.
If you have money set aside for a down payment, you have a good start already. Of course, it’s best to pay for cars in cash since they are a depreciating asset, but that may not always be possible. Talk to your banker before you start your vehicle search if you are going to need to finance the balance of your purchase.
They can help you determine how much of a loan payment you can reasonably absorb into your budget. Although, you should also have done your own calculation first because sometimes bankers will try to talk you into spending, and financing, more than necessary when you are buying a new car.
How long you plan to keep your new car should be a consideration when you first start looking for one. As mentioned, a car is a depreciating asset. The value of a car depreciates around 20 percent each year on average, with some models depreciating faster or slower than others than others.
For example, if you purchase a car for $40,000, at the end of one year it’s worth approximately $32,000, and at the end of year two, only $25,600.
This rate of depreciation continues for the first four years after you buy a new car, partly due to the auto industry’s tendency to redesign each model every four to five years. In fact, a new car’s price drops approximately 10% the moment you drive it off the lot. This is because the dealer would not be willing to pay the same amount for your car if you had to sell it back to them right after you bought it.
So, what drives the rate of depreciation? It’s partly driven by the number of miles you put on your car. Other factors are the color of your car and the customizations is has, because the more unique a car is the more likely it won’t appeal to just any buyer.
If resale values are of any concern to you, you will get the most out of your car if you keep it longer. Check the Kelly Blue Book value before you think about buying a new car to find out which models depreciate at a slower rate.
Obviously certain features in a car will cost you more than others, so if you know ahead of time which features are more important than others for your needs, you can avoid wasting time looking at cars that don’t fit the bill. For instance, a big, shiny, 4-wheel drive pick-up with a long box looks cool, but if you don’t need 4-wheel drive or an oversized truck bed for hauling things, why pay for those more expensive features when you could opt for a 2-wheel drive with a short box or an entirely different type of vehicle instead.
Plus, the bigger the car the more gas it’ll use too, so it’ll cost you more up-front and in the long-run.
The bottom line is that buying a new car is going to cost you a bundle. In order to get the most for your money, it pays to remember these things before looking at or buying a new car.
Are you considering buying a new car? What things do you consider when shopping for a new car?
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