Besides buying a home, one of the biggest purchases you will ever make is a new car. Since a car is such a big asset and can be very expensive, choosing the right type of car is very important.
When you are looking to buy a car, there are several major options to choose from. These include buying a brand new car, buying a used car or leasing a new car. Each of these options has its own benefits and drawbacks.
Before you are able to determine which of these options is the best for your, there are four big questions you should ask yourself.
What car can I afford?
When you are looking to buy or lease a new or used car, the first question you need to ask yourself is what you are willing to pay. In general, most financial experts agree that you should spend no more than ten percent of your gross salary on auto expenses, including car payments, insurance and gas.
Once you have calculated this dollar amount, you can compare the different auto options. While there are some very affordable brand new cars and attractive lease deals, used cars tend to be much cheaper, even if they only have a limited amount of miles on them.
Can I afford to pay for maintenance?
While it is important to consider the base price of a car when deciding to buy new or used, the other factor to consider is whether you can afford to pay for maintenance. One of the big advantages of buying a new car is they are unlikely to experience breakdowns anytime soon.
Furthermore, when you get a new car, you will likely get a warranty for at least the first 36,000 miles driven. This is compared to a used car which can have an unpredictable need for maintenance and repairs.
Is the new car depreciation worth it?
While the base price and maintenance costs are important to consider, the depreciation cost of a new car versus a used car is also important to think about. All cars are depreciating assets. The difference between a new car versus a used car is that new cars depreciate a lot faster during the first few years of ownership.
In fact, depending on the make and model, your car could be worth thirty percent less after just one year of driving. This can make a new car a worse investment as the resale value will ultimately be lower compared to the original purchase price.
What matters most to me in a new vehicle?
Ultimately, when you are looking to buy a car, the most important thing to consider is what matters most to you. If you want to have a car with a low payment, then getting a used car would be a better option.
If, however, you would like a car with a warranty and the latest style, safety features and tech options, then choosing a new car could be a better option.
