Purchasing a brand new vehicle is considered one of the largest investments you will probably make after buying a house. There are numerous positive thoughts associated with buying a new car. However, there are also a lot of people that do not understand the point of buying a new vehicle as it will depreciate thousands of dollars in value already during the moment you sign a contract. Therefore, they question the point to pay the full price for a new car.
Without any doubt, buying a used car or making use of car leasing are more economical decisions but in some cases, a brand new car can save a lot of money in the long run. Before signing the dotted line you should evaluate all the options available. Therefore, it is recommended to assess all the pros and cons associated with the purchase of a brand new vehicle. These advantages and disadvantages are illustrated below.
- This is probably the most important advantage of buying a new car. As far as you probably know, manufacturers have a three-year warranty for their new cars. In some cases, the warranty period is not based on years, but rather on millage coverage. The general warranty for new cars in millage terms is 60,000 miles. There are also a number of vehicles that come with a 10 year warranty period for the engine and transmission. Apart from that, you can be also offered an extended warranty beyond the one offered by the manufacturer. This three-year warranty can save you a ton of dollars. It gives you a chance to breeze freely without the need to care if something breaks down in your vehicle.
- The latest technology in place: by purchasing a brand new vehicle, you get the chance to enjoy all the newest technologies that were developed by the manufacturer. It does not include only the entertainment part of the vehicle but what is more important is all the safety features that a new car has. The vast majority of new vehicles are able to prevent car accidents without the involvement of a driver. Without any doubt, all these safety features do not eliminate the risk of getting into a car accident to zero. However, they are able to decrease this risk significantly. Apart from that, all these technological advances make the whole driving experience more comfortable and enjoyable.
The purchase process is much easier:
- It is much easier to buy a brand new car than buy a used car or lease a car. There should not be any doubt about that. Only a few questions need to be asked during the actual sale process compared to numerous questions when buying a used car or leasing a car. The only thing you can take into consideration when negotiating a car deal is the MSRP. It stands for Manufacturers Suggested Retail Price. It is a good starting point for car deal negotiations, while a used car purchase requires more homework to be done including the assessment of the book value, history report and so on. Even if buying a new vehicle is going to be more expensive than buying a used car, the actual purchase process of a new vehicle is definitely less stressful.
- Reliability: another important benefit of owning a brand new vehicle is the fact that you get peace of mind knowing that you are driving a completely fresh car, which has been recently inspected by the manufacturer and which is also backed up by both, the car factory and the dealership. Safety measures are getting at the forefront for the vast majority of drivers. Therefore, saving money is great but not at the cost of safety. Reliability ratings are also getting more and more specific and standards more stringent. It is much more comfortable and safe to drive a vehicle that has not experienced any wear and tear.
This is probably the most crucial disadvantage of purchasing a brand new car. According to recent studies, new cars typically depreciate at an 11 percent rate as soon as you leave the dealer. After a five-year period, the car is going to be worth approximately 40 percent of its initial value if you have taken proper care of it. It should be also mentioned that highly expensive vehicles have even higher depreciation rates. For instance, a brand new Mercedes Benz E Class, costing $70,000 at the dealer was sold for $31,000 a couple of years later. An important fact is that it had only 30,000 miles. If you think that this problem of depreciation can be avoided by car leasing, you are mistaken. The monthly payment for leased cars already includes the depreciation of the vehicle.
- The vast majority of dealers and financial institutions will ask you to go for full coverage insurance on the vehicle until it is paid in full. The age of the vehicle and the age of the driver are only a part of factors that have an influence on insurance premiums. However, as a rule of thumb, the newer the car, the higher the premium, whether it is full coverage or liability.
- ROI: it stands for the return on investment. To make it simple, consider the following example. You can buy houses in developing areas that will experience extensive new constructions in the coming years. Consequently, the value of these houses is going to increase as well. Although, when it comes to buying a vehicle, it does matter whether it was bought in Beverly Hills or on Skid Row. It is not possible to make a sort of profit on your investment. Furthermore, if you take a loan with a relatively modest 6 percent interest rate, the car that costs $20,000 will end up costing you $22,545 at the end of a five-year loan. In addition to that, if you add a depreciation rate of 11 percent, you will end up with a conclusion showing that you lost of a lot of money.
Buy a brand new car
In the vast majority of cases, the decision to buy a brand new car, lease a vehicle or purchase a used on comes down to an inventory of your finances and personal preferences. Without any doubt, a new car purchase is going to be one of the largest investments you will ever make after buying a house. Apart from that, some of the aforementioned disadvantages for certain people might be advantages for others. Everything depends on your personal situation, your personal preferences and the amount of “free” money that you are ready to invest.
Several tips that can help you when deciding whether to buy a new car, lease a car or purchase a used one are depicted below:
Define your needs: make sure you determine the features that you consider critical
Define your wants: these are less important than your needs but still play a role in the decision-making process. Thus, define the features you want to have in your car and also make sure they are within your budget
Have a clear understanding of your finances: you need to have a detailed look at your finances and determine whether a new car purchase is the right decision for you at the moment
Define the goals: you should have a clear understanding of whether you are planning to drive a new vehicle for a long period of time of whether use it for a set duration and then upgrade.37