Is buying a new car a poor financial decision? (2024)

Is buying a new car a poor financial decision?

Buying a new car is hard on the wallet. If you're using an auto loan to finance the purchase, you'll most likely borrow more than you would with a used car and end up paying more interest over time. Quick to depreciate. New cars depreciate more quickly than their used counterparts.

Is it a bad financial decision to buy a new car?

Is It a Good Investing Decision to Buy a Vehicle? Buying a car is usually a bad investment decision. In fact, in most cases, buying a vehicle may not be considered an investment at all because cars depreciate in value. This doesn't mean buying a car is a bad decision—it serves an essential function for many people.

Is financing a car a good financial decision?

Key takeaways

An auto loan can benefit you because it spreads out the expense of the car, leads to ownership and can help you improve your credit score. Some drawbacks to watch out for include being stuck with the same car for longer, possibly expensive monthly payments and the risk of damaging your finances.

Why do many financial experts advise against buying a brand new car?

Cons of buying new

As the saying goes, new cars lose value when you drive them off the lot. Experian estimates that new cars lose 20 percent of their value in the first year, and depreciation continues for the first 10 years of ownership.

Is it always a bad idea to buy a new car?

A vehicle is a depreciating asset, meaning it tends to lose value over time. According to Kelley Blue Book, a new car loses 20% of its value in the first year after purchase. Within the first five years, that number grows to 60%.

What does Dave Ramsey say about buying new cars?

According to the bestselling author and radio personality, those looking to buy a car should aim their sights lower, older and cheaper. “We're not going to beat around the bush: The very best way to buy a car is to save up and buy a reliable, slightly used car (with cash),” claims Ramsey's site, Ramsey Solutions.

What does Dave Ramsey say about buying a car?

"Cars drop in value like a bag of rocks, losing 60% of their value in the first five years! This isn't a smart investment. You really should only consider buying new if you have plenty of money to burn." With this in mind, Ramsey urges potential car buyers to understand what dollar amount they are capable of spending.

What's the average new car payment?

The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.

When should you not finance a car?

Is it smarter to finance or pay cash for a car?

Paying cash for your car may be your best option if the interest rate you earn on your savings is lower than the after-tax cost of borrowing.

How much should I spend on a car if I make $100000?

Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.

Is it financially better to buy a new or used car?

If you're planning to finance your car, you'll be more likely to get a lower interest rate on a new car than a used one. New cars have a higher resale value and are less likely to have mechanical issues. That means the lender is less likely to lose their investment if you can't make your payments.

What is one big mistake most people make when buying a new or used car at a dealership?

Some of the biggest mistakes include not test driving a used vehicle on the highway, settling for whatever make and model the dealer has in stock, and not walking away from a bad deal.

Why is it not smart to buy a new car?

Buying a new car is hard on the wallet. If you're using an auto loan to finance the purchase, you'll most likely borrow more than you would with a used car and end up paying more interest over time. Quick to depreciate. New cars depreciate more quickly than their used counterparts.

Do people regret buying new cars?

What can I do about car buyer's remorse? Car buyer's remorse entails feeling anxious, uncomfortable, or regretful about a new vehicle purchase, and it's common. The federal Cooling-Off Rule doesn't apply to most motor vehicle sales, and very few dealerships offer return policies.

Is buying a new car worth it 2024?

"2024 is probably the best year since the pandemic to buy a new car," Mark Schirmer, director of industry insights at Cox Automotive, told ABC News. "2021 and 2022 were really difficult years. Dealers are talking about discounts again ... this was not happening 18 months ago.

What does Suze Orman say about buying a car?

According to Carfax, cars lose 20% of their value in the first year of ownership and retain just 40% of their original value after five years. “Your goal should be to buy the least expensive car. Period,” said Orman. “That should steer you to a used car rather than a new car.”

Do most millionaires buy new cars?

(Thomas J. Stanley, one of The Millionaire Next Door authors, writes about the used car myth here). The reality that most millionaires buy their cars new, and that their cars are three or fewer years old, isn't surprising. So why do people so want the opposite to be true?

Do millionaires buy new or used cars?

Personal finance expert Dave Ramsey emphasizes that those who have built wealth between $1 million and $10 million typically drive "understated" cars. He says that people in this wealth bracket often drive used Camrys, Hondas, or old pickup trucks, as they're not trying to impress others.

How much car can I afford on 50k salary?

If you make a $50,000 gross salary, after taxes (depending on where you live) your monthly take-home pay is roughly $3,230. Based on the 10% rule, you could afford, at most, a $323 monthly car payment. If you take out a 60 month (5 year) auto loan at 8% interest, you can afford a $17,000 car.

What is the average new car payment in America Dave Ramsey?

Ramsey took people to task for the financial hole they put themselves in as they contend with massive car payments. "You've got a car payment bigger than your house payment. The average car payment in America now is $499 — that's suspiciously like 500 bucks," he said.

What is the 20 3 8 rule?

The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.

How much should my car payment be if I make $60000 a year?

If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.

What is the average monthly payment for a $30000 car?

Calculator Results

A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483. In total, the loan will cost $34,787 with $4,787 in interest.

What is a realistic monthly car payment?

The average monthly car payment is $738 for new cars and $532 for used. Several factors determine your payment.