Why You Shouldn’t Buy a New Car

Posted by on January 16, 2020 @13:24:26 EST

It goes without saying that it is indeed a suspenseful moment when you are handed the keys to your totally brand-new car – and better yet, you own it, this wonderful brand spanking brand new vehicle. 

You’re basically the first ever person to have owned this car. I guess we enjoy this special moment because a new car is brimming with state-of-the-art tech that you could only dream about, and of course has very low mileage – if any! The other thing that’s worth mentioning about a new car is that unmistakable smell of “new”– you just can’t beat that; and a new car certainly doesn’t come to you smelling of damp pets or grubby kids. It’s often also the case that you’ve been privileged enough to be able to choose your own special color palette – both inside and outside the vehicle. You’ve probably also had the option to add on special extras and additional features. 

Naturally, these are the more emotive and initial responses to the question “What’s the best thing about a new car?”, but it is also the case that a new car should work perfectly from the outset. Unless the vehicle is inherently flawed, your new car will present you with practically no maintenance issues. You won’t even have to consider changing the tires or brakes, or carrying out any other repairs for quite a few years to come. Also, if you do happen to come across an issue, you’ve usually got that wonderful three-year warranty period that most manufacturers tend to offer. Some dealerships will offer you even more years. 

The other thing to consider is that banks will have a tendency to offer you a car loan package that includes much lower interest rates if you’re wanting it for a new vehicle – especially if you’ve got a reasonably good credit scoring.

We can see that there are numerous advantages to owning a totally new car, but is it really the right move in terms of your personal finance? So before you go rushing off to secure a car loan for that brand new glistening vehicle, you might want to just stop and think a little about whether or not having a car with just a few miles on the clock is better than having a second-hand one?

The Main Reason Not to Buy New: You’ll Pay More

Unless you are super rich and money is simply no object, you’ll want to know that you are making a wise financial decision when it comes to buying a car or applying for a car loan for either a new or a second-hand vehicle. But most of us want to keep a keen eye on our finances, and ensure that we’re not paying a monthly instalment that is crippling us. Your vehicle should not be a financial burden.

The main thing about buying a car is that it doesn’t necessarily mean that your finances are compromised. You have lots of car loan and financing options at your disposal. If you’ve got a reasonably good credit rating, you can apply for a new car loan with ease. Some banks may even try to reel you in and get your business by offering the best possible interest rate for your loan.

However, even if you do secure a nice low-rate vehicle loan on a new car, this brand new vehicle will still be much more costly than an older model of the very same vehicle. This isn’t just about the higher cost of the vehicle, it’s also about paying out more in other ways. A brand new vehicle also means higher insurance than that of second-hand vehicles. Some states also levy personal property taxes, so if your car is super new, you’ll end up paying a lot more tax each year as your insurance premiums will hit the roof.

Your Car Will Depreciate More Quickly, and You’ll Have Negative Equity

It’s a basic, albeit sad, fact of life that your new vehicle will depreciate faster than your second-hand one. Nobody likes this fact, but the moment you drive that car off the forecourt, you’ve reduced its value. It’s pretty true to say that most new vehicles will depreciate up to 20% in just their first year alone! So, this means that if you do purchase a totally new vehicle with an initial payment, or your monthly car loan instalments aren’t high enough to cater for this depreciation, you may find that you owe more than the value of the car at the end.

You really do need to do the math when considering payments and depreciation. In most cases you’ll find you are in negative equity after the first year … but that’s all part of this deal. And negative equity doesn’t have to be a really bad thing provided you intend to keep the vehicle until you’ve paid it off in full. However, if you’re the kind of driver who likes to trade in their vehicle every few years or so, then the negative equity could raise the purchase price of the next car you decide to have. Let’s say the dealership will give you $20,000 for your current car but you own §23,000, the §3,000 that you still owe will be tacked onto your next car loan. So, if the sale price of your next vehicle is §30,000, you will actually end up having a car loan for §33,000.

If you play this off against buying a second-hand vehicle, or one that’s two or so years old, you’ll find that you can purchase the car at a figure that is much more in relation to the vehicle’s actual value. 

There’s More Bang for Your Buck When You Buy a Used Car

When you consider the fact that a new car will depreciate very quickly during its first year, it makes more sense to buy a second-hand car and therefore have the chance to get more value for your money. 

The main thing to consider when you’re looking to buy a car is that you really do research the market and see what’s actually out there. You can look up reviews and specifications about the car, you can also check online sites such as eBay listings to see the selling prices of certain cars. Don’t forget that this is a large purchase, so it’s definitely worth making sure you’re doing the right thing and spending your hard-earned money on something that is worth it. Naturally, it makes sense to buy a car that is three to four years old, as this means it is still fairly new and should have a reasonably low mileage; yet the first person to have owned the vehicle will be the one who has had to take the depreciation on the chin. So when you’ve had your fun with the vehicle, you can then probably sell it for closer to the purchase price (your purchase price and not the new sale price).

A New Car Really Is a Bad Investment

Generally speaking, buying a brand-new vehicle is a pretty poor decision. Like most ill-advised investments, it is usually founded on the emotive elements of the purchasing moment. Why do you think adverts for vehicles are aimed at luring you in with the vehicle’s amazing driving experience, lots of bells, whistles and gadgets that you “simply must have” etc. Sometimes these advertisements and dealerships even insult your intelligence by giving you something for free – like a paltry §1000 cash back if you buy the vehicle. They’re able to do this because they’ve probably over egged the sales price to absorb this extra cost, or they will even compensate for it with the optional features that they are pushing you to have. 

There’s not a single car dealership or vehicle manufacturer out there that is into the concept of making a loss on their cars. They don’t do discounts or giveaways simply because they like you. They do all this so that they can make money. They know that luring people in with freebies will get them to do most things, and, eventually, possibly buy a vehicle that they can’t actually afford. 

And You Don’t End up Owning the Vehicle

These days we are experiencing an interesting shift in the concept of ownership. We all know that owning something means that it is your property founded on the fact that you have procured it in a legal fashion. The thing is, when you accept the car loan terms with a dealership or a bank, you are the one who is paying them to use their vehicle to such an extent that you’ve then paid a sufficient amount of money to have satisfied the loan figure. If you have a financial crisis … you may be made redundant from work, have an emergency financial situation, or if anything else crops up which causes you to miss your payment instalments, the dealership or the financing bank will basically take the car away from you without you being able to do anything about it. Some may think this is fine as you have something that you like. That’s great if you are solvent and don’t think you’ll ever have any financial issues in the future.

Will Your Warranty Last the Length of the Loan Payment Schedule?

In short, no.

A lot of people will go down the new car route because they don’t want the hassle and the lack of assurance regarding the history of a used car. You get a certain peace of mind with that lovely new car fragrance and the manufacturer’s warranty.

The problem is that both the new car smell and the dealership warranty are not going to last forever. In fact, that lovely fragrance will disappear after a few trips out with the dogs or travelling with a takeout on the passenger’s seat. And the standard warranty will tend to only just last out across the longevity of the car loan. And, as we’ve already mentioned, the standard car loan is around four or five years, while the average warranty period for a new car is three years (36 months). So, if an electrical part fails or some other component or system on the vehicle has a fault and you’re in month 38 of ownership, then your everyday new vehicle owner is going to have to pay for that – sometimes dearly. It could be that you’ve got two years of payments to go and that you’ve already had to fork out several thousand for that unexpected repair on the engine when it blew in month 45! And don’t be fooled by the whole “no-cost maintenance” period that the dealerships like to use to get you into lots of debt and then it doesn’t exactly pay off at the time when it is needed. It’s usually the case that the bigger and much more expensive repairs and issues arise after that initial “free maintenance” period, and then you’ll be paying out of your own pocket.


New Car vs Used Car

When all is said and done, used cars are simply much better value. Why on earth would you want to lose a massive amount of money buying a new vehicle? It’s obviously a lifestyle choice but let’s face it, this decision is not the be all and end all. It’s not something that is going to significantly bring your daily life to a standstill, and it definitely shouldn’t be something that hampers your day-to-day living. 

Your choice of vehicle and the way in which you pay for it should be something that aids your life and facilitates transport. Something that literally gets you from A to B. So if you know you are making a considered and well-funded decision when choosing whether or not to blow your funds on a new car or perhaps make the more sensible choice of purchasing a second-hand one, then you’ll find there are plenty of great vehicles out there at prices that you can certainly afford. Feel free to get in touch with our friendly and experienced team today for more information.

Let's Get Started

Join thousands of Canadians who have trusted AutoLoans.ca.

Get Approved Now