How to Lose as Little Money as Possible When Buying a Car
Cars are commonly known to be a poor investment, but they are a necessity for many people. In a day and age where a new car depreciates as much as 20% as soon as it is driven off the lot, how can we avoid losing our hard earned money when we purchase a new (or new to us) vehicle?
The best way to save money varies depending on your situation. You may be better off purchasing from a private party, or maybe your best route is through a dealership. In some cases, purchasing online is the smarter decision.
So how do you know which is best for you?
Research. When it comes to buying a car, never act on impulse. Be sure you understand all of your options and have weighed them before signing any paperwork.
Purchasing a car can feel overwhelming, especially when you are trying to make the right financial decision. Here are some important things to keep in mind as you search for your future vehicle:
1. Focus on minimizing the net price (what you pay minus what you’ll sell for)
When purchasing a car, few people take the future into consideration. If you are looking to make a smart purchase, it’s imperative you keep in mind the car’s expected resale value down the road. By purchasing a car that will sell for close the same amount in the future, you will minimize your net price. Use an online resale calculator to find out how much your expected resale value for your chosen vehicle will be. While it isn’t possible to know exactly how long you will own this car or how many miles it will have when it comes time to sell, you can get a general idea of what the car will be worth by conducting some simple research.
2. Choose a popular make and model
Your car purchase is not the wisest method to express your individuality, though the function of the car is most important. If you are often the DD of your crew, make sure you’re buying a car that makes sense to haul people around. If you’re a student with special needs, look for an accessible vehicle that won’t require strain to get in. If you want an SUV, find out which SUVs are selling the best. No matter what, look for cars that are consistently popular as they are more guaranteed to be in demand in the future.
3. Make an economical decision by factoring in miles per gallon and the car’s reputation
When taking this advice into consideration, there are certain categories of cars that you would be wise to steer clear of if you are looking to save money. A couple obvious types of cars to avoid are luxury vehicles and low mpg sports cars. While these cars appeal to the superficial senses, they don’t add a ton of value for those in need of basic transportation. In an attempt to save money on fuel, many car buyer resort to hybrids and electric cars. This is where some research will apply. Battery technology is changing quickly, meaning resale of electric and hybrid cars is less consistent. Be aware of this when making your decision!
4. As a rule: Never buy a new car
While the experience of driving a new car is tempting, it isn’t worth it. If you are able to look beyond the clear odometer, brand new car smell, and status symbol that comes with driving a new vehicle, you’ll save yourself a ton of money. This isn’t just because used cars are less expensive, but because they depreciate less. In fact, after 75,000 miles, depreciation slows dramatically. Typically, this amount of miles is accrued during the first five years of purchase, so anyone buying the car new is the most likely to suffer the bulk of the depreciation. On the other hand, if you buy the car once it’s reached 75,000 miles, you’re moving out of the depreciation red zone.
5. Only buy cars with clean titles
If you think you are interested in a car with a title that says “rebuilt” or “salvage”, think again. While these cars may pass inspection and drive like they are new, they are much more difficult to sell and may cause you a headache down the road.
6. Focus more on mileage than on age
If you find a car that is at least 3–5 years old but has a low mileage, you’ve hit the jackpot. These cars are typically sold by older people who haven’t driven long distances. By acquiring a car after it’s depreciated for several years with low mileage, you’ll secure a lower rate but reap the benefits of a car with less wear and tear.
And there you have it. Do you have any lessons from when you bought your first car?
