For many of us, outside of purchasing a home, buying a car will be the next largest purchase we make in our lives. Depending on your personality, going to the dealership to find a new car is typically viewed as an enjoyable challenge as you work to negotiate the best price. For others, buying a new car can be an expensive, painful experience and as much fun as having a root canal! And, with global supply and demand challenges, the price of buying a new car is not likely to decrease any time soon.
According to the car research website Edmunds, the average price of a brand-new car reached an all-time high in December of 2020 at $40,573. Even with an average down payment of 12%, or a little over $4,700, the average monthly payment in 2020 for a brand-new car was $581, also an all-time high.
Another factor to consider when buying a brand-new car is the depreciation. Unless you are buying the 1961 Ferrari 250 GT California Spyder from Ferris Bueller’s Day Off or the 1964 Aston Martin DB5 driven by Sean Connery as James Bond, chances are the car you are considering buying is going to go down in value the moment you drive it off the lot. Carfax says that the average brand-new car loses 20% of its value over the first year, and within five years will only be worth 40% of its initial purchase price. That means a brand-new car purchased today for $40,000 on average will only be worth about $16,000 in five years.
Buying a brand-new car isn’t all bad though. Many consumers want the peace of mind that buying a brand-new car brings, since they do not have to worry about how a previous owner may have maintained the car. Brand-new cars will also feature the latest, greatest technology and safety features. Many dealerships or manufacturers will also include complimentary maintenance for the first 24-36-months after the vehicle is purchased as well, up to a certain mileage limit. These benefits, however, do come with paying the premium price tag mentioned earlier.
An area of the car buying market that has gained a lot of traction in recent years is the Certified Pre-Owned, or CPO market. These cars are typically only a few years old, undergo a rigorous inspection process by the dealership to ensure the car meets certain requirements set by the manufacturer, and are then priced at a substantial discount compared to a brand-new car. After passing the inspection process, these cars also typically have the remaining balance of their factory warranty and come with an additional extended factory warranty. Some manufacturers also offer perks like complimentary roadside assistance as well. These cars are still used vehicles though, so they could come with the pitfalls associated with buying a vehicle owned by someone else, as well as the technology will be dated by a few years.
Whether you are in the market for a brand-new car, or a new-to-you car, we hope that keeping some of these pros and cons in mind will assist you during your next car shopping experience as we keep Moving Life Forward.