We’ve all heard the old saying: a new car loses a third of it’s value the day you drive it off the lot. The exact amount of depreciation is debatable, but there is no doubt that once you drive the car off the lot it’s not “new” anymore, so resale value immediately drops.
To avoid a big drop in value, don’t buy new; buy used. A one or two year old car is still virtually new, and may still be covered by the original manufacturer’s warranty, but the initial huge drop in value has already happened. In most cases you are better off buying a two year old car for $10,000, than a new car for $20,o00.
So today’s tip: before you buy a new car, price out a comparable used car, and see how much money you can save. You can download our car payment calculator to help you with the math.
One final note: buying a new car may be a good financial decision if you plan to keep the car for five years or longer. Over a five year period the initial depreciation is less of an issue, and you still get full warranty coverage for the first few years. Decide in advance on how long you want to keep the car, so that you can make an informed decision.
