With college in the rear view mirror, many new grads may be thinking about the next phase of their lives—and how they can get around it in style.
A car may be a new, necessary expense if you’re entering the workforce. Borrowing your parents’ van can get old in a hurry. And, chances are, keys to a new Ferrari didn’t fall out of your graduation gift card from your grandmother. (Though that gift card to Target is perfectly nice too.)
If you are seriously thinking about stepping up to the plate to buy a new car, consider these four things before you do.
1. Budget And Financing
Most of us like the idea of owning something “new.” But the reality is, even if you can afford one, a new car may not be in your best interest financially.
If you have to take out a loan to get the car of your dreams, it will cost you a lot more over time. And don’t forget about the higher insurance and taxes you will pay for the privilege of being the first owner.
So, look at your budget and savings and figure out what you can comfortably afford. Reality is, if you have the money to pay cash for a decent used car, doing may your most frugal option, given your other financial obligations.
Buying a new car isn’t necessarily a great investment. That old adage about cars literally losing value the very minute you drive them off the lot? It’s totally true!
Cars generally lose 15%–20% of their value per year. And for new cars, the drop in the first few years is typically the steepest. However, if you plan to buy a new car and keep it until it’s only good for used parts, it might be worth the extra money to get the exact car you want.
3. Pre-Owned Can Look And Feel Like New
If you are open to the idea of a very nice, gently used car, think about buying a certified pre-owned car. You get most of the benefits of owning a new car, at a much better price tag. I own one and like it so much I don’t ever plan to buy new again (especially now that it’s dent free).
CPO cars have several plusses that make them a great alternative to buying new: generally, they are under 5 years old, have fewer than 100,000 miles, come with a full multi-point inspection, offer an extended warranty, and have various financing options. Also, by buying certified pre-owned, it takes away the fear of buying a lemon from an unknown source (sadly, I have experience in this matter as well.)
On the flipside, CPO cars will likely cost you more than you would pay for a similar used car for sale by a private owner. Still, CPOs are a nice middle ground between paying full price for a brand new car and rolling the dice with a used one. You get a quality, new looking car—with some protection in place.
4. Lease Or Buy?
Finally, if you really want the bells and whistles of a new car and have a good credit rating, you might consider leasing.
Leasing can offer a lower monthly payment than a car loan payment on the same vehicle. It’s also a good choice if you don’t have much money for a down payment, don’t plan to incur high mileage on the car, and intend to take pristine care of it.
Leasing is more or less like renting a car for a few years, so you have to return it in tip-top shape. On the other hand, you may have an option to buy the car at the end of the lease period.
As for my family, we are sold on the certified pre-owned concept. (The last time we bought new was 14 years ago; that van is still alive, but even the dog would rather not be seen in it.)
But some day, my husband is going to own a Ferrari, if I have anything to say about it. When we finish paying for 12 years of college tuition, if there is any loose change left over, I will happily accompany him to buy a very nice, gently used Ferrari (even if we’re too old to climb in and out of it).
Have you bought a car lately? Was it new, certified pre-owned, or used? Tell us about your experience in the comments.