From a purely financial perspective, buying new cars is a bad investment. Some vehicles lose 30% of their value just leaving the lot. Without a hefty down-payment, you could be “upside-down” in your loan for most of its life, meaning you owe more than the vehicle is worth. That negative equity can be a liability in the wrong circumstances. The warrantees, guarantees, packages, etc. that come with most new cars often elapse just as the car gets old enough to start experiencing part failures. A good rough rule of thumb for resale depreciation: Cars lose 20% of their value in the first year and 15% per year after that.
- If Driver A buys a new car at $30,000, that car is worth about $17,340 after three years of ownership, or 58% of its original sticker. Those three years saw about $12,660 of depreciation.
- If Driver B then buys that car at three years old, and owns it for the next three years, it would be worth about $10,650. Buy buying used, Driver B only assumed about $6,690 in depreciation.
Obviously, there can be other factors involved, but this is a basic illustration of the advantage in buying used cars, regarding depreciation.