Should I Buy a New Car?

Dear Friend in Finance,

My car is a clunker, and I think it's time to buy a new car. I went to the dealership to look at cars, and they offered me a great deal on the latest model of one of my favorite cars. Should I take it?

Sincerely,

Driven to Drive

Dear Driven to Drive,

Without knowing too much about your situation, I can only really say "it depends." 

Here are some important pieces of information about buy new vs used cars, however.

Cars tend to lose a lot of value when you first buy them. On average, they lose about 30% of their value within the first two years. Depending on the financing and how much of a down payment you make, it's possible that you could accidentally be underwater in your loan during that time.

Used cars tend to have lower insurance premiums. They're book value is lower, which means that insurance companies don't need to worry about providing as much coverage.

Used cars have a proven track record. With a new car it's always possible that some flaw might be in the design. Used cars typically have a significant number of their recalls figured out, and you're better able to track how that model has done over time. 

Remember: All cars depreciate over time. They are not an "investment" despite what many car salesmen will tell you. The financially most sound approach is typically to mitigate that depreciation as much as possible, while also being comfortable and within your means.

A good rule of thumb is to explore two year old used cars. These tend to have low mileage, and have gotten their most significant depreciation out of the way.

However, like I said before, without knowing your situation, both your overall picture and the specifics of your deal, I cannot make a recommendation. It sounds like working with a financial advisor might help you with some of these tough decisions!

Best of luck,

Your Friend in Finance