Most people think they’ve hit a milestone when they are able to afford a new car. Buying a new car is part of the American Dream. Or so it appears. Here are ten reasons instead to buy a used car.
- A brand new vehicle is nice to have and there are many compelling reasons to purchase one, not the least of which is low maintenance for the first several years of ownership. But buyers pay a handsome premium for this relatively short honeymoon period of automotive bliss. Around twenty percent of the new value is gone almost as soon as the car is driven off the lot. Generally with a new vehicle, drivers don’t have to worry about fixing oil leaks or brake repairs that are expensive. But…
- License fees, sales tax, ownership tax and vehicle insurance are all expensive, especially for a new vehicle. Typically a $25,000 new vehicle purchase will set the owner back at least $500 for the registration and property tax for each of the first four years of ownership. The state, county and city sales tax will stick the driver with a hefty $1675 bill, which many buyers roll into their financing, adding more interest and overall cost to the purchase. These taxes and fees, when figured into a financing arrangement, may reduce purchasing power significantly. A hefty down payment may be necessary to qualify for the vehicle and loan amount requested.
- Insurance on a new vehicle is a major consideration that many overlook. If the car is financed through a bank, manufacturer or credit union, the lender will require full collision coverage on the vehicle until the loan balance is less than the amount to “total” the vehicle. This insures that the lender is covered for the amount of the loan in case of a loss, total or otherwise. It is also beneficial to the buyer for the same reason. In reality most drivers aren’t willing to continue to pay the monthly loan amount for four to five years on a vehicle they can’t drive. In some cases the amount of depreciation on a new vehicle for the first six to twelve months outstrips the value that the insurance will pay in case of total loss. There is a special type of insurance that addresses this situation; it is called “gap” insurance. Gap insurance will cover the difference, or gap, between what the regular collision insurance will cover and the balance of the loan. Of course, the owner must pay this additional cost on top of his/her regular insurance until the gap period is over.
- Don’t overlook the impact of dealer handling fees, destination charges, add on accessories and dealer installed options. A typical dealer handling fee starts at around $200 and goes up from there, adding to the price of the vehicle. This fee covers the dealer’s expense to prepare the vehicle for sale, which includes but isn’t limited to cleaning, removal of shipping protectors, and floor or lot fees. Many new dealerships finance all the units they purchase for sale. They don’t own the vehicles outright, so the bank now has a financial impact on what the dealership sells the unit for. The bank charges the dealership interest on every vehicle as well as for unsold stock on the showroom floor and lots. This raises the price per unit at the dealership. Depending on location, a destination fee of $900 or more is added to the sticker price for trucking the vehicle from the factory to the dealership. Dealer-installed options or dealer-added accessories and services drive up the final cost too. Unless they really want them, drivers shouldn’t get talked into clear coat paint protectants, stain or interior applications or vehicle detailing services. These add-ons and services are nice, but they eat away at the down payment or trade and keep the finance amount high. Why do dealerships try to sell their clients so hard on theses extras? Profit on the sale. Dealers also make more money on the interest on larger loan amounts if they do their own financing.
- Buying an extended warranty even on a new vehicle is rarely worth the cost. All new vehicles will come with some sort of manufacturer’s warranty. Depending on the make, an owner can expect to see anywhere from 3 years 30,000 mile to 10 years 100,000 mile factory warranty which generally covers engine, drivetrain and major components to be free from manufacturing defects for the stated period. Warranties will never cover normal wear and tear, which means tires, brakes, glass and interior accessories. So unless the engine or transmission or covered parts fail under the warranty period and are caused by a manufacturing defect, the new owner gets nothing! Beware of high deductible plans. Is it worth it to pay a $400 deductible to replace a $50 sensor and the associated labor? Don’t ever, ever buy an extended warranty because under normal circumstances what is covered can be fixed for less than the cost of buying the warranty. Read all the fine print in the contract and be aware of exactly what is covered and what isn’t. The number of definitions, terms and exclusions included in the document language are surprising. Beware of warranties that are not an extension of the new car factory coverage. In other words, the warranty is administered by an outside third party. They just want money and will almost always deny a claim. These extended warranty companies know that most purchased warranties will never be used and they tend to deny all but the obvious cut-and-dried claims. In this case the dealership is off the hook for warranty repairs and they have no vested interest in supporting a plan they don’t administer.
- Oh the new car hype! Gotta have the newest, baddest “keep up with the Joneses” car on the block. Vehicle manufacturers spend more money on consumer research, design and marketing in a year than the income of everyone in every neighborhood. New or first-year models tend to be more expensive than their older tried and true rivals. Look at the SUV sales explosion. Trucks and mid-sized SUV models were outselling traditional passenger sedans by a wide margin starting in the early 2000’s. Then the next hottest thing was the sub-compact or compact SUV crossover. Everybody had to have the sporty all-wheel drive, four-wheel on the fly or some iteration of traction control in these models. Thus the manufacturer-driven hype allows them to charge a premium price, especially for inaugural year debut vehicles. Why do small vehicles with basic apportions sell for almost as much as their big brother counterparts? Because they can be sold for what buyers will pay for them, not for what they are worth. As an example, my good friend bought a compact SUV all-wheel drive new in 2003 as a first model year introduction. The sticker price for the car was $23,000. Sure it had power windows and locks, air conditioning and cruise control, but the paint, seats and interior were nothing special. He could have purchased a whole lot of car with lots of amenities and luxury in 2015 for the same amount! Beware of new or trendy models. Their prices are more often inflated and not a great new car value.
- So it starts, “Hey mister, want me to call you a tow truck or something?” Your response, “You’d shut up if you knew what was good for ya buddy! While you’re at it, hand over that tensioner wrench you pumpkin-pie-hair-cutted freak!” Truth in advertising. Beware of “Rated best buy in initial new car value.” Translation: In three years the doors are falling off, the driver’s power window is stuck in the down position whenever it snows and every last cup holder, air vent control and seat recliner lever is broken. Choose your vehicle manufacturer and model wisely. Extended warranty anyone?
- Buyer’s remorse. After the deal is done and that new baby is sitting in the driveway, glistening of fresh paint, chrome and new-car smell, the owner remembers all the little things he/she wanted the new car to be, but it’s not quite right. It looks like a pretty good deal, but it’s still a lot of money for just reliable transportation. Weeks pass by in happy bliss until paragraphs 3, 4, 5, and 6 of this list hit like a flash mob in the mall on Black Friday. Buyer’s remorse is no joke. Getting roped into contracts and extra services will be expensive. New car insurance is expensive because new cars are expensive. Payments for the vehicle depend on amount financed and interest rate over time. Payments for a $25,000 vehicle (depending on how much cash and/or trade in is put down to start) could range from $350 to $500 a month on a loan term of three to five years. Be prepared to shell out another $125 dollars a month for insurance, with good credit and a decent driving record. By the way, don’t be under 25 or over 75 years old. Insurance rates at these ages are higher than the age groups between them. Drivers in these groups are too young and reckless or are getting old enough that vision and reaction times have deteriorated enough to be considered high risk.
- In a time when manufacturing and labor unions are at odds with each other over pay, health benefits and retirement plans, companies look for ways to improve their profit margins. Usually this translates to cheaper components and farming out of sub-assemblies to save on cost. The result may manifest itself in safety or functionality defects, in turn causing a recall. Some recalls are safety related, like a defective ignition switch or air bag inflator and related electrical issues. Manufacturer recalls are at no charge to the consumer for the repairs but it can be a hassle getting the vehicle to an authorized repair facility. Defects resulting in a recall may take several years to become apparent and some recalls come a decade or more after the fact. The National Transportation and Safety Board mandates that car manufacturers improve safety devices and car design to better withstand impacts. Safety bumpers and crumple zones are but a few modern improvements implemented to reduce injuries in a crash. The EPA also dictates emissions restrictions and fuel economy mandates, further pushing the technology advancement of the industry forward. Newer vehicles are many times safer than even ten years ago, but drivers can still benefit from this newer technology if they buy a used car even a year old.
- I am not a fig plucker, nor am I a fig plucker’s son, but I will pluck figs until the fig plucker comes. Oops…wrong number ten. This article is titled “Ten Reasons to Buy a Used Car,” so these aforementioned points are in deference to that goal. Purchasing a used car that is three to five years old is the best value. Most of the new car depreciation has already taken place and the first owner took the hit. If there were any known manufacturing defects or safety recalls, they have likely been addressed. The cost of registration and insurance has declined as the used car ages. If regular maintenance has been performed on the vehicle, the mechanical systems will still be in good shape. The interior, paint and body panels, unless the car has been neglected, should be in good shape as well. Get any prospective pre-owned vehicle purchase thoroughly checked by a reputable shop or service before any price negotiations with the seller. Following these steps, being aware of all the pitfalls, fallacies and tactics of new vehicle sales will ensure that consumers are well armed against fraud and rip offs. Buyers who purchase a reliable used vehicle that has been well maintained will save on preventative maintenance and ensure that they won’t become the person on the side of road berating the pumpkin-pie-hair-cutted tow truck driver. Drive on.
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Darcy Martineau is a North Dakota transplant to Colorado Springs, but after living there most of his life, he is more native than foreigner. A sound engineer for his own company, Buddha Boys Audio, Darcy has spent the last 12 years providing sound reinforcement to live concerts at both indoor and outdoor venues. As a classically trained bassist Darcy knows the music scene from both sides of the sound board, and he has many connections throughout the area and all over the country. He enjoys almost all genres of music and spends his spare time, when there is any, enjoying classic sci-fi literature, playing Words With Friends, watching movies, and spoiling his two black cats, Cassie and Orion.
