Are you thinking of buying a car? Is your decision tilting towards buying a new car? Before you head out to make a purchase, do give a thought to the other option. Buying a pre-owned car may not make for an appealing choice; but makes sense financially.
Stay away from the New; Go for the Used Cars
Who doesn’t love the new car smell? You may have set your eyes on a new car but here’s why you should head to the used car section at the dealership.
Buying a New Car becomes Expensive every Year
Even though there are several affordable car models, buying a new car and keeping it is becoming expensive year over year. Obtaining an auto loan for buying a new car is resulting in higher monthly payments than before. According to Experian’s Q2 data for 2018, a car buyer spends $525 on a new car loan. And, if he seeks a used car loan, it comes down to $378. So, it makes sense to buy a used car.
Loan Terms are getting Longer
Lenders charge high-interest rates from sub-prime borrowers. Then, they try to cover up the fact with longer loan terms. For example, if you wish to buy a new car with super-prime credit, lenders will offer a loan term of 62 months. The term can increase if you are looking for low monthly payments. But, remember low payments do not mean affordable loan terms. Check the total interest amount instead of focusing on the longer terms.
The Risk of Negative Equity
Constant rise in monthly payments and long loan terms spell a recipe for disaster. A new car loses value as soon as you leave the dealership lot. And, the lenders direct initial payments towards the interest amount. It means the amount you owe to the lender becomes higher than the value of your car. Being in an upside down loan situation is very risky proposition. If the car is totaled for some reason, you will have to pay the difference between the insurance money and the pending loan amount. So, consider choosing a used car because of its low value and low depreciation rate.
Let your Brain take the Lead!
Buying a car is an emotional experience. You may adore a brand. You may have set your heart on a certain car model. But, remember that a car is the second biggest purchase of your life. If you listen to your heart and disregard cognitive thinking, you will face bad credit score and unpaid debts in the future. So, consider your financial condition, credit score, and cash availability before buying a new car. If you think that higher monthly payments will put an unnecessary burden on your financial condition, go for a used car. Listen to your brain and make a practical decision.
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