We’ve seen a few stories recently about how, in some cases, it’s cheaper to buy a new car than a used one. This isn’t counter-intuitive, for the reason that new car loans are now at their lowest rates in nine years, averaging 4.16 percent last December.
Yet that figure doesn’t apply across the board, since it reflects mostly luxury car sales and affluent buyers, as these charts on Edmunds.com demonstrate. And a lot of those incentives and zero-interest loans are for the expensive barges that you and I couldn’t afford new or used, Jack.
The other factor that makes it sometimes cheaper to buy new is the continually rising price of good used cars (and the higher interest charged on used-car loans). But unless you are totally captivated by the idea of owning a brand-new shiny beauty, you’ve got to figure what your cash flow is going to be over the car’s lifetime, as a recent Wall Street Journal piece made clear.
It all comes down to what you can afford to spend, and how to get the best value for that money. New-car-crazed buyers will jump on the new loan rates, assuming they can now afford that BMW, while smart used-car buyers will do their math and perhaps look at other alternatives.
Here are three big factors you need to consider before you succumb to new-car buying fever.
1. CarGurus did a recent study showing “that low-mileage used cars take between one and two months to sell,” while older, cheaper ones move faster. Your best deals could well be on recent American cars whose sellers are waiting impatiently for a price they may not get. Check out DealFinder to discover one near you.
2. To decide whether you’re really ready for a new car, you can’t do better than the advice given by one Des Toups of msn.Money. Basically, write a check to yourself for the amount you would spend on a new-car payment, including insurance, registration, etc. Do this for three months and see how much financial pain is involved. How would you have used that money otherwise? Could you keep on saving for another year and pay cash for a used car?
3. Can you do without a car altogether and simply rent when you need one? How would you city-lovers like doing without car payments, the cost of gas, repairs, insurance, and the general hassle of owning a car? That’s what I do and, believe me, it has been a substantial relief.
Car buyers often hate to do math in advance of a purchase, because it forces them to face reality and shake off car lust. Do you hate that sort of math or love it?