Should You Ever Buy a Brand New Car?
March 13th, 2008 12:02pm EST
True penny pinchers always buy used cars over new ones for one rock solid reason: new cars depreciate by thousands of dollars the second you drive off the lot. But three years ago, before my financial epiphany, I bought a new car, and I don’t regret it. I concede that buying used is usually best, but there are times buying new isn’t as bad as some say.
“Happy New Car!” by Telstar Logistics.
To understand how I arrived at the conclusion it is sometimes OK to buy a new vehicle, you have to understand that I went from thinking I was being smart buying a new car, to deeply regretting it, back to being at peace with the decision after all. Talk about a flip flopper!
But before I justify owning a new car, let me recap the advantages and disadvantages of buying a new car or a used car.
Advantages of Buying a New Car
- Factory warranty
- No previous owners (and unknown accidents or mechanical incidents)
- Low financing rates usually available
- Few maintenance costs for 2-3 years
Disadvantages of Buying a New Car
- More expensive
- Immediate depreciation
- Unknown reliability for model year
- Higher tax and insurance costs
Advantages of Buying a Used Car
- Less expensive
- Slower depreciation
- Lower tax and insurance costs
- Reliability data available from Consumer Reports, etc.
Disadvantages of Buying a Used Car
- Unknown accident and mechanical history
- Higher financing rates
- Higher dealer markup
- Higher maintenance costs
On paper, the new vs. used debate seems fairly balanced. Financially, however, one can usually prove that buying used will save you a lot of money – even when markups, interest rates, and maintenance costs are factored in.
Why I Bought New
I admit my new car purchase was driven by the frustration of 10 years of driving used cars. Not just used cars, but 10-15 year old, 150k+ miles, USED cars. The kind of cars that I prayed would start each morning, and the kind of cars that I prayed didn’t just die on me driving 75mph down I-95. And they were the kind of cars that did not start many mornings and often did die on me driving down I-95.
When it seemed like I could afford a car payment, I jumped at the chance to buy a brand new 2WD Toyota Tacoma pickup. It had utility, excellent reliability ratings, and was a 4-cyl 2WD model, so it still got decent gas mileage. It seemed like the perfect compromise between practicality and the itch for a new car.
Why I Started to Wish I Bought Used
For the first six months, I was ecstatic with my decision. You don’t second-guess yourself when you still enjoy that new car smell each day. And then, while I was parked on a suburban street, somebody swiped my driver’s side door and left a softball-sized dent.
I was a wreck. I am embarrassed to admit, I was a bit attached to my truck back then. But I had dealt with dings and dents before. And I knew people who drive around Boston and get a fresh bruise on their car every single day! I was so upset, however, because this was still a brand new car!
That’s when I started to realize the futility of trying to protect a shiny new car, and the drastic effect actually driving a car around (dings or not) sends the car’s value plummeting.
Why, Ultimately, I am OK With Buying New
Eventually, I decided not to repair the dent. My insurance deductible is $500, and I estimate it might cost $1,200 or so to repair if I did it on my own. If I ever thought I would resell my truck, I would have to get the repair, but I decided to drive the truck into the ground. The dent doesn’t affect the body or drivability of the truck in any way, just cosmetics, and $1,200 – even $500 – for cosmetics, especially on a “truck”, seems silly.
The reason I know I will never trade my truck in or sell it is that I drive way, way too much—more than 25k miles a year. I figure if I drive for eight years and 200k miles, it won’t be worth anything and I will replace it.
For somebody who drives as much as I do, and who is OK with driving one car for 8 years, I think a new car ultimately made sense. I wouldn’t be able to get 200k out of most used cars, and I would start hitting costly maintenance much sooner given how much I drive.
I expect that when my life settles down a bit I will drive much less. At that point I will probably buy my next vehicle used and – hopefully – pay cash!
What About You?
Have you ever bought a new car? Are you happy with the decision?
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On Mar 13, 2008, The Coolest Gifts said:
Do you really think that “higher dealer markup” is a disadvantage of buying a used car? It doesn’t affect you, does it? I think that “little or no warranty” should be the fourth disadvantage as opposed to the dealer markup. Just my .02
On Mar 13, 2008, savvy said:
I’ve never bought a new car and probably won’t ever but I’m not opposed to it in theory (for other people). If that’s what you want and you can afford it, then by all means.
What I did for my most recent purchase (and will probably do in the future) is buy certified pre-owned. I still am under the factory warranty and receive free maintenance and the dealer had a financing promotion which was better than that of my credit union. It’s the best of both worlds to me.
On Mar 13, 2008, Money Under 30 said:
Coolest Gifts, you raise a good point, I guess I’m not sure how the dealer markup affects buyers, only that when you negotiate for a new car you can pretty easily find out exactly how much the dealer paid for the car.
I was going to include “lack of warranty” in the used car disadvantages but then was thinking about the certified pre-owned options and how used warranties are getting better, as savvy said.
So thanks both of you — excellent points!
On Mar 23, 2008, nick said:
Great article…I bought my car new when I was 18 and still drive it today. I have no regrets about buying new. I think it makes sense if you are going to drive a lot of miles and don’t mind driving the same car for a long time. My car is now 9 years old and has over 130,000 miles on it and runs good (knock on wood). There have been many times that I have thought about buying a new car, as all my friends, colleagues and relatives have been doing. Sometimes, I do feel like a dork driving my old shitbox, but I rather keep the money in the bank and have it grow rather than try to impress people or keep up the Jones’. I plan on driving payment free for at least a couple more years.