The Smart Guide to Deciding Between New and Used Cars

The Depreciation Debate: Does It Matter?

The depreciation argument against buying new cars is often cited, but it may not matter if you plan to keep the car for a long time. While it's true that new cars lose a significant portion of their value as soon as they leave the dealership, this factor becomes less relevant if you intend to keep the car for many years. For instance, the author bought a Nissan Sentra in 2004 and sold it for $2000 nearly 18 years later, demonstrating long-term value.

Moreover, the average time a driver keeps their vehicle is 8-9 years in the author's country. This suggests that many people hold onto their cars long enough to offset the initial depreciation hit, making the long-term ownership of new cars more financially sensible than commonly perceived.

The Value of Reliability and Warranty

Buying a new car can be advantageous due to the warranty and reliability, especially if you plan to keep it for a long time. New cars come with manufacturer warranties that cover repairs and maintenance for a specified period, providing peace of mind and potentially saving you money on unexpected repairs.

In contrast, the used car market can be poor, with used models sometimes costing only slightly less than new ones. For example, a new Dacia Duster costs around 20,000 euros, while a second-hand one from 2017 with 75,000 miles costs around 15,000 euros. Given the minimal savings, the benefits of a new car's warranty and reliability might outweigh the cost difference.

The Illusion of Second-Hand Savings

Some children's brands claim to be an investment but often don't hold their value well in the second-hand market. During the pandemic, the second-hand cloth diaper market stagnated due to people overvaluing their used diapers. This scenario is somewhat analogous to the used car market, where the perceived savings might not always translate into actual financial benefits.

One user follows a personal rule of never buying second-hand items for more than 50% of their original retail price. This rule can be applied to cars as well, ensuring that you get the best value for your money. However, this can be challenging in a market where used cars are sometimes priced very close to new ones.

Choosing the Right Brand

Cars with high resale value often have high reliability or maintain exclusivity, such as Toyota, Honda, Lamborghini, and Ferrari. Resale value is an indicator of long-term viability and the cost of ownership. Therefore, choosing a brand known for its reliability and resale value can be a smart financial decision.

Certain brands like Honda, Lexus, and Ford F-150 are recommended for new car purchases due to their reliability and resale value. On the other hand, brands like Chevy and BMW are less recommended for new purchases due to poor resale value and high maintenance costs. Making an informed choice about the brand can significantly impact your overall satisfaction and financial outcomes.

Special Ordering and Customization

Special ordering a new car without many upgrades can be a good strategy to ensure you get what you want at a lower price. This approach allows you to tailor the car to your specific needs and preferences without paying for unnecessary features.

Depreciation can occur due to the broken illusion of exclusivity, high maintenance costs, and lower reliability. By carefully selecting the features and avoiding excessive customization, you can mitigate some of these depreciation factors and enjoy a more personalized driving experience.

The Importance of Long-Term Ownership

Depreciation is less of a concern if the car is kept for a long period, as the initial drop in value becomes less significant over time. The reliability of a car brand plays a crucial role in its resale value and overall cost-effectiveness.

Some people prefer knowing the history of their car and having the security of a warranty, which new cars provide. The decision to buy new or used depends on the car, intended use, and how long you plan to keep it. By considering these factors, you can make a more informed decision that aligns with your financial goals and lifestyle needs.