There is a downside of buying a shiny new car and that unwelcome friend is depreciation which is something you need to think about.
Buying a new car is exciting and oftentimes a symbol of achievement if you’re buying your first car or upgrading to a nice, luxury one.
Drive Off the Lot, Then Depreciation Starts
You’ve heard the warnings from friends, family, and car experts reminding you your car’s value drops the second you drive it off the lot. According to CarFax, “your car can lose more than 10 percent of its value in the first month of driving it and then up to 20 percent after the first year.”
It’s a wonder that people choose to buy a new car every so many years knowing that the depreciation value will take a chunk out of their brand new car’s value. One might think that depreciation would eventually level out, but that depends on how long you plan on keeping your car. According to Credit Karma, even after owning your new car for five years, your car’s value is roughly 40 percent of its original value, meaning it’s depreciated 60 percent in those 5 years.
Owning a New Car Costs You
Buying a new car should mean you’re buying a car that will last you and won’t cost you extra money down the line, but when you break down the costs to own and drive a new car, you may be surprised. AAA’s annual study revealed a person will spend just under $9,000 a year to keep up with a new car, and that’s if you’re driving 15,000 miles a year.
If you’re driving more miles each year, then you can expect your costs to increase. If that $9,000gives you second thoughts about buying a new car, don’t forget that depreciation plays a role in that amount too. From the same AAA study, they found that “depreciation accounts for almost 40 percent of the cost of owning a new car, more than $3,000 per year.”
Other Investments With Your Money
Looking at all the dollar signs surrounding depreciation should have you thinking, what else could I be spending my money on? If you don’t absolutely need a new car, and really you don’t because there are many fantastic pre-owned cars for sale, you should sit down and really think about how much money that new car will cost you versus what else you could have spent that money on.
It’s easy to be caught up and fascinated with shiny and new, but the reality is if you’re on a budget or have other important things needing fixing, then it may be smarter to spend your new car money toward those other things.
Consider How Much Depreciation Costs You
Depreciation is a money black hole just eating up the value of that 2019 car you just had to have. It’s important to realize that depreciation goes beyond the initial drive home. Weigh your options before you sign on the line for that new car, and consider what may be a wiser use of that money.
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