Should I Just Buy A New Car Instead Of Fixing My Old One?

You’ve possibly heard that purchasing a vehicle is the second biggest expense that you’ll have in your lifetime right behind purchasing a home. Considering an average sticker price in 2013 of $30,748, that’s probably a true statement. Here are a couple of points to consider with that purchase besides the monthly payment.

That $30,748 is before taxes, license, delivery, and some other items.

Tax @8% $2459.84
Destination Charge $825
Registration $301
Total $34,333.84
Let’s say you’ve got excellent credit and the manufacturer is offering 0% financing and you’re not trading in anything. Your monthly payment would be $572.23 for 60 months. Possibly you don’t qualify for 0%, or it’s not offered for the model you are looking at- good news, interest rates are low and you might get an auto loan for 3.5%. That would mean your monthly payment is $624.60. Not too bad as it’s only costing you $52.37 to use the banks money per month, or $3,142.20 for the duration of the loan. Is that it? Unfortunately no, there’s a little thing called depreciation.

You’ve probably heard that as soon as that new vehicle leaves the dealer you’ve lost money on it. The depreciation schedule starts as soon as you drive the car off the lot. One nice thing is depreciation happens quicker in the first few years and then tapers off. This is good if you’re planning on keeping a vehicle for a while, and not so good if you like to trade in vehicles. Let’s look at what that $34,334 vehicle costs in depreciation for the first 5 years, or after you’re done paying for it. Depreciation roughly would be $23,410, leaving you with $10,924 for a trade in if you decide to go that direction. Looked at another way, you’re losing $390.16 every month you drive that new vehicle. Your monthly cost would be $624.60+$390.16=$1,014.76.

The monthly expense of $1,015, excludes gasoline, insurance, yearly registration, and maintenance costs. Yes, you’ll still have maintenance. Most new vehicles come with a bumper to bumper warranty of 3 years, or 36,000 miles and a powertrain warranty for 5 years, or 100,000 miles and excludes wear items such as tires, brakes, oil changes, wipers…Figuring gas costs and driving 12,000 miles a year, using an average of 25 MPG, using regular gas currently at $3.70 a gallon, costs $1,776 yearly, or $148 a month. Full coverage on your insurance, yes-you’ll need full coverage if you’re making payments, will be at least $150 a month if you are a good driver. So you are now looking at $1,313 a month, excluding registration and maintenance costs.
Some other factors to also consider would be that every year newer a vehicle is, there are also additional systems that have been added that increase the complexity, which translates into increased repair costs. Some of these items have been mandated by the government for safety reasons such as Tire Pressure Monitoring, Air Bags, Anti-Lock Brakes, and Stability Control. Others are due to more stringent emission controls and others would be due to consumer demand. All and all, owning a new vehicle is a major purchase and one that should not be taken lightly as it will cost you a great deal of your hard earned cash.

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