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New Car or Used?

Consider these factors when buying your next car.

Sooner or later, we will have to buy our next car. Notice I didn’t say “new” car.

For years, I have bought “gently used” cars rather than a new one. Why? A 12-letter word: Depreciation. 

Here’s a standard rule of thumb about purchasing an automobile. A car loses 15 percent to 20 percent of its value each year. In fact, an average new car loses 11 percent of its value the minute you drive it off the lot, according to Edmunds.com, a data provider to the auto industry. So why not let someone else take that hit and buy a two-year-old car at two-thirds the cost of a new car?  

 

When to Buy

Our trusty 2002 Ford Explorer is closing in on 150,000 miles and I know we’ll soon be faced with the decision of whether it’s worth it to repair an older car. But how do we know when we’ve reached that point?

Most cars today are designed to last about 100,000 miles without major repairs and since many are warrantied for up to 100,000, you should consider keeping your vehicle while it’s covered.

However, if the cost of a major repair is more than the value of your car, it’s time to shop. The two best websites to determine car values is the Automobile Dealers Association at nada.com  and Kelley Blue Book at kbb.com. NADA tends to be a little lower than Kelly Blue Book so I average the two. This will help you determine the value of your car. Remember that trade-in values are significantly lower than selling the car yourself. In our case, we can expect roughly $2,500 trade-in, but might realize closer to $5,000 if we sell the Explorer ourselves.

Another rule of thumb, according to proautobuying.com, is that you should consider getting another car when your current ride is worth less than 25 percent of what you paid for it. (I’m not sure where the writer got that figure. If true, we should have purchased a car a few years ago!)

The average age of the cars and trucks on U.S. roads hit a record 10.8 years as of July 1, 2011. That’s up from 10.6 years in 2010, continuing a trend that dates back to 1995, when the average age of a car was 8.4 years, according to the Polk research firm, which studies state vehicle registrations.

 

Finance options

When considering buying another vehicle, it makes sense to pay cash if possible. You’ll be glad to be free of a monthly note.

If you currently have a car payment, build a cash reserve by saving for your next car the moment you finish paying off your current ride. Simply continue depositing the amount of your previous car payment into a savings account each month until you have enough for another car.

Although the price of the car itself is the major cost to consider, other factors — gas mileage and insurance — play a role in your monthly expenses as well. The older a car gets, the less it costs to insure. But older cars also tend to get poorer gas mileage which means higher fuel costs. 

Your best bet is to keep your current automobile in tip-top shape until you’re ready to make a move. To learn more, visit fuelconomy.gov. It has loads of helpful tips and tools for making your car last as long as possible. Then when you’re ready to sell, you’ll receive top dollar for your car.

 

 — Bargain Beth is written by Memphis freelance writer and bargain hunter Beth Bartholomew.

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