The prospect of owning a new car is fun, exciting, and exhilarating. The glossy wax coating, new rubber tires, shiny chrome trim, and detailed interiors with that new car smell- all tempting us to make the leap. Think twice! According to the National Automobile Dealers Association, the average price of a new vehicle sold in the United States during 2009 was $28,400. Think about it, this number is probably more than half of the national median household income. For many, a vehicle is the second largest lifetime purchase (house being #1). Does this make sound financial sense? To me, it would make more sense to start an income producing vending business with some of this money.
$28,400 spread over 5 years (60 months) at an interest rate of just 5% per year (simple interest) is $535.94 per month!! This doesn't include the monthly depreciation expense that most buyers don't consider (which will cause heavy stress when trying to resell the vehicle).
Be financially savvy and purchase a used vehicle, preferably with cash that is around 2 or 3 model years old. After 2 years, you are avoiding the largest depreciation years. A vehicle's value after just two years is roughly 60 to 70 percent of its original value. In our example above, a vehicle purchased at 2 years old would cost roughly $17,040 (saving $11,360). The savings are even greater when you add finance costs and interest expenses to a new vehicle purchase.
If you do consider used, make sure to purchase a certified used vehicle. Most of the large manufacturers offer this program at their authorized dealerships. You should also research the current market value of the vehicle you want to purchase by going to Kelley Blue Book. If you have done your homework, a used vehicle will pay you dividends down the road by avoiding those lofty monthly payments.
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