The pros of owning a new car is you should be able to own it for 5-10 years relatively surprise-free years and know exactly what it will it will cost. 

2. It has a new car smell!  So worth it!

Turns out you can buy that chemical-plant smell in a bottle now (maybe an affiliate link)

3. Low to no Maintenance

I hear this all of the time. That the main reason they want a new car is so they don’t have to pay for big maintenance bills. This can certainly be a factor for you, especially if you don’t have a trusted mechanic.  

4. The newest safety features

The biggest argument I always read about is the fact that a new car has the newest technology and safety features like touch screens, multiple air bags, window sensors, satellite radio, extra phone charging plugs, assist parking and so much more. Absolutely, true!  You are paying for that with the new car and the cost of having the state of the art safety and technology costs a lot.  

5. Efficiency 

There are more fuel efficient and electric car options now. This isn’t as big of a deal now that  the cost of fuel has decreased, but it does make a difference. If you do have an electric car make sure you calculate the cost of electricity since you do have that cost. It will be measurable, unlike plugging in a phone. In some cases, you may still get a tax credit for buying a fuel efficient or electrical vehicle in your area. 

6. Warranty on a new car

It is wonderful knowing you can drive your car and if something happens you are covered for a limited amount of time or mileage for some of the possible repairs. 

7. Maintenance Free programs

For a period of time (depending on the car you purchase) you may even have a maintenance free program.  Here are some sources of those programs: https://www.edmunds.com/car-buying/are-free-vehicle-maintenance-programs-worth-it.html

https://www.autobytel.com/auto-news/10-free-new-car-maintenance-programs-106370/

8. 0% interest and no money down

Who wouldn’t want to have a free loan.  This is amazing!  The chancing of getting 0% is slim most car dealers financing only limit this for a couple cars in the lot and you have to excellent credit.

1. Depreciation costs a lot ….it happens as soon as you drive off the lot.

Do a search on depreciation on high end cars and popular cars and it is fascinating to see how fast and how slow depreciation occurs. Most cars lose 30% – 50% of their value in the first 5 years. Caredge does a good job at comparing used cars because here you can find the sweet spot of a vehicle’s depreciation and save. 

In some high end or expensive cars, depreciation can be thousands of dollars as soon as you drive off the lot. While a popular car that people will pay for will depreciate but not as fast.  Remember you are paying for the “new” in the new car. If depreciation is fast, and you have a car loan that is higher than the value you will end up underwater on that vehicle.(Underwater means you owe more than the car is worth.)

Here is a study to show which cars depreciate faster. The good news is you can tell which cars hold their value vs. those that don’t. You may find a good deal on those that don’t hold their value if you wait and buy them used. 

My husband and I own an old used 2003 Mercedes Benz G500. It originally cost over $78,000 new in 2003. We purchased it used for under $8,000 since it needed some (!) maintenance.  That is a depreciation of $5,714 each year or 7.14% each year. Kind of unheard of since these vehicles now tend to hold their value a little bit more because of their cool off-roading features and celebrity appeal. A new one now costs $178,000!  What?! 

While researching this post, I was very surprised at how fast electric cars depreciate. The reason is the newer technology is similar to how computers depreciate so fast because there is new technology available. This makes perfect sense. It would make sense to purchase one of these a couple years older as you can find a great deal. As the technology improves and the demand increases I see the used electric cars possibly depreciating more slowly. I will note that electric cars may cost less in gas but some areas in the country like in California they are now charging $100 a year or more on electric car registration fees to cover the lost tax revenue from gas sales. 

2. Costs of repairs for safety features and technology

It costs so much more for some of the technology to have in the cars particularly the sensors in the windshield and bumpers. These safety features are amazing but can cost $1000 – $5000 to replace if something goes wrong, or if you are in a minor fender bender. With new technology, like integrated air conditioning and heating controls within the screens, if your screen fails the cost to replace it can easily be $5,000 or more and you will need to repair it. Some of these features are not covered by the warranty unless they fail due a manufacturer defect. Which then explains why insurance rates are so high for newer cars with this technology. 

3. Warranties are not everything

Understand that not all warranties are the same. Nowadays most manufacturers put in caveats and of course have a limits on time and mileage. So if you tend to drive a lot, you can reach that warranty limit in a small amount of time, or the time limit might be shorter than your car loan since most warranties are 3 years. Plus, beware of what is covered if something were to go wrong. Do you have to go to a dealer for all repairs and maintenance? It is very important to read this fine print.   

To be clear I hear this all of the time that people assume that basic maintenance items are covered under the warranty and that is not the case. As an example:  oil changes for some manufacturers can cost anywhere from $100 – $3000.  Yes, you read that correctly for an oil change due to labor costs to take parts off and on. The cost of the oil change is necessary to keep the warranty valid but you have to pay for that maintenance, unless you have a maintenance package included when you purchased the vehicle. More about that below.

4. Maintenance free programs are not what they seem

Not all maintenance free programs are the same and some only cover a small amount of time and others may cover only when you reach certain mileage. Some include a couple oil changes or the preset mileage-based maintenance. Read the fine print carefully.  

5. Higher Insurance rates

Check the rates for insurance for the car you are interested in buying new or used because the rates say a lot.  You want to make sure you can afford them along with the payment or the car cost. This is also why new cars cost more when it comes to insurance. The chances are high a new car can get in a fender bender and the insurance will have to pay to have it fixed and fenders cost a lot to fix.  In some cases, what might not seem like a big accident is and an insurance company may total the car because it would cost more than it is worth. Beware, that value is not what you paid for the car or even what you may still owe on the loan. This is why for higher end cars that depreciate quickly it is best to get gap insurance.  Gap insurance is extra insurance to cover you if you if the car is totaled and the loan you have is more than the car is worth.

6. High Car Taxes or registration fees

In some states they have car taxes called personal property and registration fees.  Make sure when you are buying a new or used card to check on the rates. In Virginia, the car tax does get reduced but only on the first $20,000 after $20,000 you have to pay the full amount. So a car that costs $40,000 will cost about $1,066 in car tax each year and will reduce as the value decreases. It does pay to have an older car because the car tax is less when the car value is less.

7. 0% interest rates are not available to everyone

Just remember that 0% financing options aren’t available to everyone. You have to have excellent credit and show you can pay the regular monthly payments too. Most require a score of 740 or higher. Higher is best for any good interest rate nowadays. Plus, depending on the dealership and location they may only offer this deal for a few cars at a time. 

“A rate of 0% for 84 months may seem like free money. But if you’re buying more car or truck than you typically could afford, you could be putting a big dent in your budget. According to Edmunds data, the average loan term length hit a record high of 73 months in April. And 81% of car buyers who financed their vehicle agreed to a loan term between 67 months and 84 months.”

8. Car Loans – 7 year to 8 years 

Now that most cars cost over $25,000 or more car dealers have been offering 7 to 8 year car loans but on average most people get tired of their cars in 6.5 years or feel maintenance is high and want to trade it in. 

“The average length of ownership for a new car is about 6.5 years (79 months), according to IHS Markit. Used car ownership averages 5.5 years (66 months). Americans do not tend to drive their cars until the “wheels fall off,” no matter what they say they’re going to do when they buy them.”

The issue with having a loan that long is the depreciation is working against you. You may actually owe more than your car is worth for a long time. Imagine going into the dealer to trade in your 6 year old car and hearing that you owe $9000 and the car is only worth $6000. So your “new” car will be another $30,000 + you still owe $3000 for the difference of the previous loan. 

Per Edmunds: “The average negative equity was $5,571 for consumers who traded in their vehicles for another one. That means they owed more than $5,500 on average than the old car is worth. “