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In car buying, which is the better purchase decision? A new or a used car? I bet you keep telling your self it is a new car. Well, that would be true if we were working with ideal situations and fixed parameters.
However, you will realise that buying a used car makes more financial sense if you work with the two most important factors in car ownership; depreciation and repair costs. When both parameters are studied over a specified time frame under normal circ*mstances, one is able to ascertain the best financial decision in the car buying process as shown in the graph below:
From the graph, you will discover that the most rapid or accelerated depreciation of a car or equipment occurs in the first fifth of a it’s life cycle. Then it evens out with higher repair costs and lower depreciation as the car ages.
In other words you will lose most of your money on a car’s value in the first few yearsofitslife, and as the years progress you will have less and less depreciation.
On the flip side with buying a new car you will have very little repair costs, or if any in the first few years. So the key question is, should you buynewand face the heavy depreciation in the beginning, but have very little repair costs?
Or...
Should you buy afairly usedcar after the heavy depreciation has occurred and risk the repair cost?
The answer lies in buying within what we call the"sweet spot", the point at which an indicator (in this case ‘depreciation vs repair costs’) provides the optimal balance of costs and benefits. This sweet spot lies between2 to 10 yearsfor the age of the car(assumingweareworkingwithdailyusepassengercars). It is what one would consider the best financial choice to own an car.
With this scenario any prospective buyer is going to have the best possibility of getting a car for thebest price, with theleast amount of maintenanceduring his or her ownership.
If one looked for a car that is around that sweet spot range, with medium usage, he or she will get the best overall value. The reason you do not want a car with little to no usage is that it could mean the owner was not checking it on a regular basis for small issues.
Like is the case with any equipment, routine maintenance is key and quite important as a factor of the purchase.
Against the tide, most people buy new cars because there is very little risk involved, and hesitate to look for a used one on any day.
The best financial move though is to buy a high quality used car even though I want to clarify that there is nothing terrible or wrong with buying a new car. However, the decision has to be for reasons other than the financial aspect. If you have been saving up for a long time and want that experience of getting a new car or new features that come with newer car models, that is okay too.
However, many people want to get a car that matches exact to what they want. Such people are willing to sacrifice depreciation for it to feel clean, fresh, and new. It also goes without saying thay If you have got money tospend, there is nothing wrong with that go right ahead because not everything has to be a financial decision.
Excerpt from CAR KNOWMICS — All you will need to know about cars, by Jerome George Osuna.
