Ever wonder about the people who are financially comfortable and choose to drive older model vehicles? Well, don’t wonder. Instead, do the math. There just may be a method to their madness — and it’s pretty smart. Experts agree, in most cases, it’s usually much more cost effective to buy a pre-owned car instead of a new one. Here are few reasons why:
Depreciation on Day 1.
Depreciation is a “decrease in value due to wear and tear, decay, decline in price, etc.” The moment a new vehicle leaves the dealership parking lot, it loses value. Credit karma estimates that value can depreciate 20% or more just in the first year, depending on the make and model. This is something to consider, especially if the buyer isn’t planning to keep the vehicle for a long time.
According to U.S. News & World Report, “Much of a vehicle’s value is lost during the first few years of ownership, with less depreciation occurring later in the car’s life. By purchasing used instead of new, you let the first owner absorb the massive depreciation hit, giving you a much lower-priced car that will depreciate more slowly as it ages.”
It’s helpful to do some comparative shopping for the best rates on auto loans, and consult with a trusted Banker before making a final decision on a vehicle purchase. At Fidelity Bank, we make car buying or refinancing convenient, easy and affordable. Loan decisions are made locally, so you can count on fast decisions. No matter what kind of car you want, our affordable Auto Loans get you behind the wheel in no time. We also offer competitive rates and convenient terms.
According to Kelley Blue Book, the average new car costs about $38,000, compared to Edmunds data indicating the average used car price is about $20,000. Car prices — new and used — are rising, and they are expected to continue to increase, which is important to remember when shopping for a vehicle.
When it comes to auto insurance, the general rule of thumb is: the more expensive the vehicle, the more costly it will be to insure. Nerdwallet offers insight into how insurance rates are calculated by factoring in a car’s retail price, cost of parts, and safety features. Researching the cost of insuring a vehicle prior to making a purchase is always a good idea.
Most new vehicles are equipped with the latest technology — a feature that could be considered both an advantage and disadvantage to buying a car new. However, strictly from an economic standpoint, this advanced technology could prove to be expensive should repairs be needed after a vehicle’s warranty expires (usually after three years or 36,000 miles).
New cars are only available at dealerships.
The ability to negotiate and shop for the best price could be somewhat limited when buying a new car because new vehicles are sold exclusively through dealerships. In New Cars vs.Used Cars, John Vincent, U.S. News & World Report, points out: “When you buy from a dealer, a portion of the price you pay will go toward the considerable overhead that keeps a modern dealership open. Of course, there are benefits from buying at a dealer, but they do come with a cost.”
Fuel for thought
Buying a vehicle is a major financial decision, and there are multiple factors to weigh. In addition to price, consumers must prioritize safety features, technology, fuel efficiency, maintenance and repair costs, and style. As with any large purchase, the best course of action is to make a list of priorities, conduct research, and make a pro/con list. These websites are a good starting point for anyone in the market for a new or pre-owned vehicle:
Consumer Reports: Car Buying Guides
The Balance: Buying a New Car vs. a Used Car
Fidelity Bank has built a strong history as trusted advisors to the customers served and is proud to be an active member of the community of Northeastern Pennsylvania. With our branches located throughout Lackawanna and Luzerne Counties, Fidelity Bank offers full-service Trust & Investment Departments, a mortgage center, and an array of personal and business banking products and services. The Bank provides 24 hour, 7 day a week service to customers through a variety of digital banking tools, branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 1-800-388-4380.
Daniel J. Santaniello, President, and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.