4 Questions to Help You Decide on a New or Used Car

• The reasons to buy new or used aren’t the same for everyone
• Depreciation is the single largest expense of car ownership
• Maintaining a used car requires more time and money

Once you’ve finally decided to replace your current car, the next question to ask yourself is: Should I buy new or used?

That depends. Unfortunately there is no one-size-fits-all answer. There are sound reasons to buy new and sound reasons to buy used.

Too often the only questions we ask ourselves: Will I look good behind the wheel? and How big a monthly car payment can I afford? Neither of these questions will help you make smarter car buying decisions.

Here’s a tip: Buying a car based on how much car payment you think you can afford per month will almost always ensure you buy too much car and pay too much for it. It’s also the wrong question to ask yourself when deciding between new and used.

When making the new vs. used decision, each of us must examine our unique set of financial and life requirements. A little introspection is good for the soul and the wallet.

For most people, we think it makes more sense to buy used, but there are some exceptions.

Here are four questions to help you be a smarter consumer and navigate the new-used decision-making process.

Do you have a down payment or a trade-in with equity?

If your credit is good, you may have less problem buying new with little or no down payment than buying used. That’s because many manufacturers offer incentives for new cars that simply aren’t available in the used-car market. These are typically in the form of rebates, cash incentives and discounted financing.

Financing a used car will almost always require money down, whether in cash or a trade-in with equity.

If you do your research and wait for the right opportunity, you may find a new car with a large enough manufacturer incentive to cover the down-payment requirements.

Is there a good reason you, rather than someone else, should take the huge new-car depreciation hit?

Depreciation, or the loss in a car’s value over time, is sneaky because it’s a hidden cost most of us don’t face until trade-in time.

But if a car depreciates, say, $7,500 from the time you buy it to the day you sell it, that’s like throwing $7,500 away. That’s $7,500 you will never get back and won’t have available to spend on other things.

There’s usually an emotional tie with a car that’s missing in our relationship with the vacuum cleaner or washing machine; but in reality, a car is just another appliance. It’s not a buddy; it’s not an investment. It can convey status and provide some pleasure, but it won’t make us smarter, better looking, more interesting or wealthier.

Because of depreciation, generally it makes more sense to buy used and here’s why: On average, a new car loses between 20 and 30 percent of its value the moment it rolls off the dealer’s lot. Some cars can depreciate up to 50 percent in the first three years.

You don’t have to take our word for it. Kelley Blue Book has a Cost of Ownership calculator designed to figure the average five-year costs of any vehicle, including depreciation.

According to that calculator if you purchased a 2012 Honda Accord EX Sedan with a suggested retail price of $25,875, it would depreciate a whopping $6,735 in your first year of ownership and $1,883 in the second. That is, it would be worth 74 percent of its original value after the first year and 67 percent after year two. It would only be worth $15,525, or 60 percent of its original value, after three years. And Honda has a better track record for retaining value than many other brands.

How do you feel about throwing away $10,000 every three years?

If you purchased a two-year-old EX, the average retail price, according to KBB.com, would be $20,675. That’s a purchase-price savings of $5,200 – all of which is depreciation.

Depreciation, though, has little affect on owners who drive a car until the wheels fall off. After more than a decade or two, that old beater won’t be worth much in terms of trade-in or resale value any way. Those same owners, however, don’t seem to mind driving an older car, so why not buy a two-year-old model to begin with and save more than $5,000 on the purchase price?

Buying used should also translate into lower insurance premiums and personal property taxes – meaning even more savings.

Can you afford to maintain and repair a used car?

Some carmakers offer free maintenance for the initial years of new-car ownership. That’s in sharp contrast to the average cost of upkeep for a used car. It can be argued that buying used is just assuming someone else’s problems. It’s a roll of the dice.

You can take some steps to minimize the likelihood that you are buying a “problem” used car by having it inspected by a qualified mechanic and obtaining a detailed vehicle history report from an agency like Carfax or AutoCheck before buying, but some issues may still go undetected.

No matter how well a car has been cared for, at 30,000 plus miles, some bits and parts are going to naturally wear out; consequently, maintenance and replacement costs will be higher for a used car than a new one.

Unlike depreciation, repairs and maintenance are hard costs that must be addressed as they arise. KBB estimates that a two-year-old Honda Accord EX will cost $1,838 in maintenance and repairs the first year you own it. Those costs drop to $880 the next year, but it’s still a substantial amount. These are costs for which you will need to budget. Do you have the discipline to do that?

If you buy a nearly new used car, you may inherit some portion of the new-car warranty providing some protection for a few months or even a couple of years. Many car companies now provide powertrain warranties for five, six or even ten years. But be sure to check the automaker’s rules on transferring the warranty before you buy.

Many car companies also offer certified pre-owned cars that cost a little more, but offer a factory-backed limited warranty.

Can you cope with the time a used car spends in the shop?

Not only does a used car cost more to keep operating, but it will likely spend more time in the shop. It may only be a day here and there, but could be a week or more for bigger repairs.

On average, new cars spend less time in the shop. Moreover some manufacturers or dealers offer loaner cars during routine maintenance visits while a car is under warranty. Can you deal with a used car’s extra down time?

Once you answer these questions for yourself, you will figure out whether it makes more sense for you to buy a new or used car.

H/T Source: AutoTrader.com

Tips for Shopping for a Vehicle for Your Teen

According to the National Highway Traffic Safety Administration (NHTSA), auto accidents are still the leading cause of death for American teenagers. However, due to safer vehicles graduated license laws, the numbers have decreased 65% from 8,748 teen deaths in 1975 to 3,023 in 2011.

Regardless of statistics and new vehicle safety precautions, automakers still haven’t come up with a vehicle that can drive itself when the weather gets bad, when a tire blows out or when another driver becomes distracted and wanders into your lane. Seasoned drivers rely on their experience and split-second-decision-making abilities to negotiate these perilous moments. Teens don’t have that experience.

Automobile crash experts cite inexperience, low seat belt use, driving with too many passengers in the car, inattention, drugs and alcohol and excessive speeds as the reasons why teens are involved in so many fatal crashes.

Another culprit is the size and type of vehicle they drive. In an emergency situation, because a young driver has little or no driving experience to draw on, he’s forced to rely on the structural integrity of his vehicle to see him through a collision. The kind of car a teen drives could mean the difference between injury and death.

Does that mean you should rush out and buy a brand new car with all the latest safety options?

Not necessarily. However, the Insurance Institute for Highway Safety recommends newer models. They do better in crash tests than older cars and have extra safety features like air bags, anti-lock brakes and passive restraints.

How a vehicle does in a frontal impact depends on its structural integrity and its crumple and crash zones. Crumple zones absorb energy on impact, and since their collapse is controlled, the energy that would otherwise damage a passenger area gets channeled to different parts of the vehicle.

Bigger vehicles have longer crumple zones, providing more protection to the passenger areas. However, they’re not an ideal fit for everyone. Consider a young petite woman. If she can’t comfortably reach the gas pedals or see over the steering wheel, she’s not going to have good control of her car. Consider, too, the rollover issue with sport utility vehicles. Because they have a high center of gravity, they are more prone to rollover than cars. Experts cite speed and inattention — two culprits behind teen crash fatalities — as the causal factors in rollovers.

NHTSA conducts front and side crash testing on vehicles predicted to have a high sales volume, vehicles that include a new safety feature or have been structurally redesigned. The agency also assigns vehicle rollover resistance ratings. They publish their results on their website. Before you begin to research your automobile’s crash test scores, take a moment to look at the website’s “Frequently Asked Questions” page. You’ll glean insight into the different kinds of tests they perform, under which conditions they perform them, and the factors they use to rate performance. Another source for crash test information is the Insurance Institute for Highway Safety.

If you’re in the market for an older model, experts recommend buying a sturdy and reliable — but not overpowered — sedan. Your teen won’t be able to drive at excessive speeds, but if he loses control of the vehicle, he won’t face the increased rollover risk he would if he was in a high profile vehicle. Make sure the car’s tires and brakes are in excellent shape. Examine seatbelts for loose or fraying fabric and make sure they attach and retract properly. Consider having the car thoroughly checked out by a trusted mechanic.

Selling Versus Tradein

So you’ve decided to buy a new car. Congratulations! Now comes the decision of what to do with your old car. These steps can help you make the choice that’s right for you.

Research Your Car’s True Value
The first bit of research you’ll want to do is establish the current value of the vehicle you are going to sell or trade in. Kelly Blue Book is a good place to start. Many other Internet sites and buying guides are available to assist you in your research. Make sure the information you are looking at is current, as prices can vary greatly from year to year. Don’t forget that other factors, such as mileage, accident history, maintenance records, and general appearance, will factor into the amount a buyer is willing to pay. The sentimental value you place on your car may be just that. “Your baby” may not be as charming to others as you think.

Decide How Soon You Must Sell
Determining your car’s value will help you decide if it is worth the time and effort to sell it yourself. Do you need the money as a down payment before you can buy your new car? Selling on your own may take more time than you think. Making appointments with prospective buyers as well as keeping your car clean and attractive may not be worth the additional dollars you’ll gain from the sale. It can be tempting to trade in your old car for an immediate down payment on your new ride.

Determine What is Most Important to You—Cash or Convenience
Dealers use your trade-in to make money. You’ve already determined the fair market price for your vehicle, but the dealer is going to pay you less. You must decide what price you are willing to pay for convenience. For example, if you believe you can get $5,000 selling the car yourself, and a dealer will give you $3,000, is it worth the $2,000 difference for the immediate gratification of having the cash in hand? For some people, the answer is yes. The hassle of advertising, taking to strangers (and the potential danger of strangers coming to their house to look at the car), and the days or weeks of waiting for the car to sell is enough to convince most people to let the dealer make the profit. But for some, the additional moneymaking potential is worth the additional effort.

Preparing Your Car for Sale or Trade-In
Whether you trade or sell your car, there are few things you can do to increase the perceived value. Make sure the car is very clean and any obvious flaws, such as a cracked windshield, have been repaired. Provide a list of all maintenance records, such as major repairs or recall work, so the buyer will know the history of the car. If necessary, deodorize the interior to remove smoke, pet, or food odors.

Seven Key Points About Auto Financing

The automobile is an essential part of American life. Even high school students, the ink barely wet on their drivers’ licenses, often expect to have a car at their disposal. Most of us would have a hard time getting to work, doing our shopping and leading our daily lives without a car.

The problem is the cost. For most people, a vehicle is the most expensive purchase they make except for a house. Therefore, financing a new or used car is a major transaction. However, there are seven simple steps to financing a car that you should keep in mind. Follow these steps when you’re planning to finance:

1. Shop for your financing first. Don’t wait until you have a car picked out and the salesman is dangling keys in front of your face. You may make an impulsive decision that isn’t your best deal. Check around for financing before looking for a car. Credit unions are often the best deal for car loans, so be sure to contact your credit union for rates. Figure out what you can afford and stick to it. You won’t help yourself if you spend more than you can afford.
2. Remember that there are three steps to the car buying process. You can win or lose on all three. The process includes a) buying your new car, b) selling your old car, and c) financing your new car. Look at each step separately and make your best deal on each.
3. Any car you look at is not one-of-a-kind. There will always be another vehicle. Get your best deal from one dealer, and then take that to another dealer to see if there’s an even better deal for you.
4. All things are negotiable. This includes price, features, financing, terms, trade in, and warranties. Don’t be afraid to ask questions, make counter offers, or even get up and walk out of the dealership.
5. Although the differences can be small, there is a better time to cut a deal. At the end of the month, the dealership sales department is running up against its monthly quotas and the pressure to meet the goal intensifies. Sometimes, if the salesman or sales department hasn’t met the quota, they’ll be open to a better deal.
6. Get your best deal in writing then go home and sleep on it. The deal will almost always still be there in the morning and your thoughts will be clearer.
7. If you’re not having fun buying your new car, go home. This is not a time to succumb to high pressure sales pitches or your own tiredness. Buying a new vehicle should be fun.