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The Pros and Cons of Buying a New Car

Second to the purchase of your first home, buying a new vehicle is one of the largest investments you’ll make. This fact alone should compel potential buyers to exercise due diligence before signing on the dotted line. There are many positives that come with buying a brand new vehicle. There are also a few caveats that should be taken into consideration.

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The PROS:

Low Interest Rates

The continual and historic low interest rates set by the Federal Reserve has trickled down to auto loans, as well. Scottsdale Hyundai, for instance, could offer a rate as low as 1.35 percent, depending on your credit situation.

Warranties

Most vehicles come with a manufacturer’s warranty that, on average, covers three years or 60,000 miles. It’s also common for vehicles to come with a 10-year, 100,000 mile powertrain (engine and transmission) warranty. The dealer will even offer an extended warranty beyond the manufacturer’s expiration date.

Latest Technology

A used 1990 Camaro may be your dream car, but won’t have the navigation system, Internet access, satellite radio, or built-in MP3 player the 2013 model has. Newer vehicles (2010 and later) can also go upwards of 10,000 miles between oil changes. Some other perks of new cars include lane departure warnings, collision avoidance systems and self-parking.

Related Article: Free Money and the Lost Art of Haggling: Buying a Car

CONS:

Depreciation

Edmunds estimates a car loses 11 percent of its total value as soon as you drive it off the lot. By the time you’ve paid off the five year loan, the car will be worth, on average, about 40 percent of its original value if you’ve taken good care of it — the depreciation rate is even worse with more expensive cars. Popular Mechanics pointed out a brand new 2008 Cadillac Escalade, with a $60,000 price and only 41,000 miles, selling for $32,000 a couple years later.

Related Article: Why You Should Never Buy a Brand New Car

Insurance

All dealerships and finance institutions will require you to carry full coverage on your vehicle until it’s paid in full. Insurance premiums are based on several factors, including the age of the vehicle (and driver). The newer the vehicle, the higher the premium will be, whether full coverage or liability.

Return On Investment

Some people buy homes in developing areas that will experience extensive new construction and thus higher property values. Whether you buy a new car in Beverly Hills or on Skid Row, you will not turn any sort of profit on the investment. Even with a relatively-modest 6 percent interest, a $20,000 new vehicle will ultimately cost $22,545 at the end of the five year loan. Factor in depreciation and you’re basically conceding that the pros outweigh the cons in purchasing a new car.

The decision to buy new, used or lease will come down to an inventory of your finances and personal preference. But always shop around for the best deal and never accept the first offer.

Photo Credit: aldenjewell

Lionel Burns
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