Whatever you do, don’t buy new. It no longer makes sense – and can be very bad for your wallet. I advise this as an automotive journalist, a guy who writes about new cars for a living. This is probably not a good idea. I am not supposed to advise people against buying the new cars I write about. But I do – and here’s why:
In the first place, new cars have become disproportionately expensive.
Meaning, relative to what most people – most families – earn. Last year, the average price paid for a new car (this is called the “transaction price” within the industry) was in excess of $30,000. A record high. But the average family income in the United States is only in the neighborhood of $54,000 – and has not increased significantly in more than a decade.
The purchase of a $30,000 car is disproportionate relative to the average family’s ability to pay for it. This is why the length of the average new car loan has been extended to six years – and is headed toward seven (and then probably eight). Stringing out the payments over a longer period makes the car seem more affordable, but it’s not. You are still paying an amount that’s disproportionate relative to income.
This problem is particularly acute with certain types of vehicles – full-size trucks, for example. It is very difficult to find a new one that costs less than $30k. For example, a base trim 2016 Chevy Silverado 1500 regular cab with a short bed stickers for $26,655. But most people who need a full-size truck need a full-size bed and four-wheel-drive. Without them, a truck is fairly useless for the things people generally want and use trucks for. But those two items push the MSRP of a truck like the new Silverado to well over $30k. There is no longer any such thing as an affordable (given average family income) full-size pick-up.
Not that’s new, at any rate.
One should also factor into the cost equation such things as property taxes and insurance, both of which will almost always be higher if the car is new. The property tax – in areas that are so afflicted – is based on the current retail value of the vehicle, as described in trade publications such as the National Auto Dealer Association (NADA) “blue book.” The newer the car, the more you’ll pay – and in some areas, you’ll pay a staggering amount over the first five or so years it takes for a new vehicle’s value to depreciate to a reasonable level.
People sometimes forget to budget for this – and end up losing the vehicle because they could not afford to make the payments on it and pay the taxes on it.
For the same reason, be sure you can afford the insurance as well as the payment. You should factor in a possible raise in rates, too. All it takes in many cases is a single speeding ticket to incur significant surcharges. Two tickets and it’s a near-certainty. What are the odds you’ll get at least one ticket over say the next five or six years? Could you afford to pay say 20 percent more than your current premium? If not, think twice about buying the vehicle or you could find yourself in a financially desperate situation.
If you can’t afford the insurance, the vehicle becomes useless because you can no longer legally drive it.
But the real financial peril that comes with the keys to almost any new car is the likely – the almost certain – repair costs you’ll be dealing with a few years from now. The technology being fitted to new cars – LCD touchscreens, “drive by wire” controls, a litany of “active” safety features such as automatic braking/steering assist – is forbiddingly complicated and it’s an engineering maxim that the more complex a given system is, the greater the odds of a failure vs. a simpler system.
