The Right Time To Buy A Fresh Car Is Never
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With auto dealers practically providing away vehicles and car and truck buyers getting approved for historically low- and even no-interest car loans, a shiny fresh set of wheels might look awfully tempting these days.
But just like that 60-inch flat-screen TV that goes on sale on Black Friday, it’s a purchase that isn’t for everyone.
Should you ever buy a fresh car? There are times when buying a fresh car becomes a necessity, but there are also money-saving motives for stringing up on to an older car a little longer. Here are five reasons why you might want to rethink making that drive to the car dealership.
Your old car can get through 6-figure mileage.
It used to be that once a car hit 100,000 miles, it was destined for the junkyard. These days, 100,000 miles is merely the halfway point for a lot of vehicles. That’s because many of the cars that flipped off the assembly lines in the past ten years were designed to last much longer than their predecessors.
For independent mechanic Keith Exsterstein, it’s not uncommon to see cars with 150,000, 170,000 or even 200,000 miles come into his shop, Keith’s Auto Repair, just outside of Fresh Orleans.
“The cars nowadays are built better in terms of reliability,” he says.
Even economy brands such as Hyundai and Kia have stepped up and are staying in the game past the 100,000-mile mark, formerly a death sentence for those models of cars, he says.
It all comes down to car maintenance. If the holder diligently goes after the manufacturer’s maintenance schedule, a vehicle can get through well into the six-figure mileage range, Exsterstein says. “And if you don’t do the maintenance, you’re going to pay — either in repairs or by having to buy a fresh car,” he says.
With fresh wheels comes fresh expenses.
It’s not just about the car note.
The size of the monthly payment might be the very first thing people consider when eyeing a fresh car. But lightly overlooked is a entire other set of expenses that are infrequently considered with buying a car, such as auto insurance, gasoline bills and taxes.
“For many people, depending on where they live, a newer car is going to mean higher insurance,” says Mary Ellen Nicol, a certified housing counselor for CredAbility, a nonprofit credit counseling agency based in Atlanta.
Car insurance is based in part on the value of the vehicle. Newer cars tend to cost more to insure because they have newer parts and, as a result, would cost more to repair after an accident.
Gas prices are another consideration, Nicol says, especially if you’re looking at a fresh car that calls for premium gasoline instead of regular or gets lower gas mileage than your current car.
Then there are the taxes and fees associated with buying a car, says Philip Reed, senior consumer advice editor with Edmunds.com, an auto research website based in Santa Monica, Calif. “What a lot of people don’t realize is that the fees to make that transaction are going to be pretty steep,” he says.
In California, the purchasing process alone can set you back more than $1,200 on a $Ten,000 car, Reed says. California’s sales tax on a $Ten,000 car is 9.25 percent, which comes out to $925. Registration fees for that car would cost about $150, and documentation fees would be $100 or less.
And some states charge either an annual or one-time ad valorem tax on automobiles that’s proportional to the value of the car.
“You can see your ad valorem dual or triple when you buy that fresh car,” Nicol says.
Depreciation takes bite out of fresh car’s value.
Depreciation is one of the fattest expenses of possessing a car. On average, a car loses fifteen percent to twenty five percent of its value each year for the very first five years, according to Edmunds.com.
“When you step into a fresh car, it’s almost like you buy fresh depreciation,” Reed says.
Making pricey modifications to your car doesn’t help, either. Options depreciate very quickly, so that $Two,000 navigation system you bought four or five years ago when the car was brand-new is not adding any value to the vehicle, Reed says.
“It’s a depreciating asset. So, the less money you put into it, the better,” Reed says. A better idea is to put that money into real estate or some other asset that will build up value.
The good news is that once a car is five to seven years old, it’s lost most of the value it’s going to lose. So, as long as you’re getting reliable transportation out of it, it’s a good idea to keep that car for as long you can, Reed says. “Cars will always be worth something if they run.”
Even with the sometimes steep repair bill, you’re usually better off keeping an older vehicle if it’s paid off, says Exsterstein.
“You can strike the note,” he says.
Still, you have to factor in cost. If you’re paying $300 to $400 per month on repairs on a car that’s paid off, you’re shelling out about as much as you would for a car loan payment.
It also depends on the type of car you drive. Of the cars Exsterstein sees, European imports tend to be the most expensive to maintain, costing two to three times as much to substitute certain parts and fluids as their Japanese- and American-made counterparts.
And some cars are simply built better than others. Japanese-branded sedans and compact cars tend to be more reliable and are generally the least expensive to fix, Exsterstein says. “If it’s a (Honda) Civic or (Toyota) Corolla with 100,000 miles or so, I’d say keep it. But if it’s a Dodge Neon, I’d say get rid of it because it’s going to cost a lot more to fix when it cracks down,” he says.
You might lock yourself out of a mortgage.
If you’re planning to buy a fresh house or refinance the one you have, adding a car loan to your debt explosion could wreak havoc on your borrowing abilities.
“Leaping to get that tempting car loan could price you out of the house you want to buy or the interest rate you want to get on a refinance,” Nicol says.
Interest rates on a mortgage or refinance are based not only on your credit score, but also on your debt obligations. Lenders these days also tend to be more conservative. So if you’ve just taken out a car loan, the bank might not be too keen on providing you an even fatter loan, that is, a mortgage.
With interest rates at historic lows, Nicol advises making the most of these rates with a house very first and putting the car on hold. “Even if you don’t get the awesome car deals that are out there, it’s still a much smaller purchase than a house,” she says.
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This story was originally published by Bankrate.