Car depreciation sucks

Financial gurus have a hard and fast rule when it comes to purchasing a car - never buy a brand new car.

However, automotive enthusiasts would often swear that there’s no replacement for the hassle-free driving offered by a new car since you won’t expect major repairs at least in 2 to 3 years’ time. Driving without headaches, they say, is priceless.

But is it really worth it? How much is headache free driving, really?

Even if you have all the dough to buy a brand new car in cash, there’s always depreciation to contend with. The moment you drive one off the lot, the car automatically depreciates 15-20%. That means a car that you bought for $15000, will be worth $12,000 in just the few minutes after you purchased it.

Let’s say you don’t have money and have to take a financial plan to pay for it. Let’s say a five-year term since many automakers have now made five-year warranties almost standard on their vehicles.

A five-year term assigns as much as 30% on interest. That means, you’ll be charged $19,500 for a car that’s worth $15,000. In your first five minutes of owning it alone, you’ll be out $7,500 – half the value of the car!

Typically, at the end of five years, your car will only be worth $6,000 or a depreciation of $9000. All in all, plus the interest of the loan, you’d have spent $19,500 for a car worth $6,000 when you finally own it. $13,500 down the hole.

So to a point, that’s the real value of hassle-free driving with the warranties and all. You’re basically buying two cars.

Related posts:

1. The used car conundrum
2. Car dealership service and maintenance
3. Never buy a new car
4. New car: Not just about price
5. US, UK roll out “cash for clunkers” programs