Let’s discuss why used cars are preferable to new cars. In fact, how much do you think you are losing with the purchase of a new car? The average 2017 sale price for a new car was just under $35,000. A lot of people are aware that a new car depreciates as soon as you drive it off the lot; however, most people don’t realize that it continues to depreciate beyond that first year. In fact, most don’t realize at what rate depreciation happens. So, let me walk you through it.
When you drive a brand-new in that first year it will lose 20% of its value! ???? In fact, the minute you drive it off the lot it will drop that whole amount! In this example, the average car costing $35,000 just depreciated $7,000 by driving it off the lot. Ouch! Kelly Blue Book agrees that for every year you have the car, the average depreciation will continue to range from 15%-20% per year. In totality, it could depreciate somewhere around 60% within the first four years.
Unfortunately, people see the amount owed decrease over time as they make payments and view it as a good thing, but that is not the case because the car also continues to depreciate in value as well. Right now, the average car payment is between $440 and $450 a month for up to a seven-year period. That makes for a tremendous opportunity loss. Most people trade their cars in at the three-year mark. What then happens is most go and get a new car, but the difference between what the car is worth and what is owed on it are rolled into a new loan. They then find themselves stuck and getting further and further behind in what they owe on that current car. The gap between what is owed and what the car is worth can become astronomical. It can be as little as $2,000 but can also be as high as $13,000 or more. Ouch! It all depends on how much the car is worth and what kind of car it is. Sometimes cars retain their value better than others, but they all depreciate significantly. With a majority of my clients, I find that around the two-year mark, or right before, things flip upside down and now they owe more than the car is worth, thus creating a gap. Around that two to three-year mark, they start talking about a new car but realize they can’t make the payments. They can’t sell the car because they can’t get enough for it. It is worth less than they owe and they are stuck! I do not want that to happen to you!!! So, what is a better plan? Instead of $35,000, take $15,000 and buy a good quality, cash car. Don’t have $15,000? That’s okay. Buy a $5,000 car and work your way up. If you read my most recent blog, you read about walking through getting that smaller car, working it up to improve its quality, and saving those car payments in order to make the money work for you. This will help you get used cars for life. Let’s say you just took the example of $15,000 and purchased a car in that amount; you would save $20,000. What could you do with that $20,000 savings? You could take two adults to Fiji for a week! You could take ten people to Disney for a week! You could put that in retirement! There are so many other things you could do with that money. Spending that money on a brand-new car is losing! There are quality used cars out there for you. Don’t fall into the lie that new cars are always better, safe, or more reliable. That is simply not true! There is an oversaturated market of used cars out there. You just need to know how to navigate it and find the right car for you. Feel free to contact me and I will set you up with the checklist and all the steps to buy used cars. Avoid those lemons and buy a top quality used car that won’t break the bank and that will keep your wallet heavy and your heart light.
Question: Are you right side or upside down with you car? What's your plan? Share in the comments below!