Devils advocate: 3 reasons you should buy a brand new car
It’s standard personal finance advice that you should never purchase a brand new vehicle. The instant you drive it off the lot, it will lose a huge percentage of its resale value, meaning that you are taking a huge financial network hit by purchasing a brand new vehicle. Not to mention that with a brand new vehicle you will never know the history of the car because it doesn’t have one yet – that particular model could have been manufactured with defects that are just waiting for you to experience. However, as you should with all advice, question it and consider if the advice is actually true. Should you never buy a brand new car? Well, here’s three reasons why you should buy a brand new car.
Better value
Depending on what type of vehicle you are looking to purchase, a brand new car may be a much better value. If you’re looking for the least expensive, then no, it won’t be the best option, but a brand new car may be the best value. One of the ways you’ll get a better value is with the warranty. Buying a used car will give you a reduced or non-existent warranty for the vehicle. Having the warranty for a number of years (up to 10 for some) can give you a very long time in which to drive worry-free about manufacturing defects. In addition, you may notice that the price difference between a brand new car and a relatively new one (2-4 years old) is actually not that great. This is most evident in the economy class of vehicles (<20k). When shopping for a vehicle, take all options into consideration. Sometimes paying an extra thousand or two may make sense if you don’t already have 50k of mileage on the vehicle, and a longer warranty to boot.
Better service
If you buy directly from a dealership (watch out for dirty car dealerships, however), you can often get great service from them. Some dealerships will do oil changes for free for a number of years, others will wash your car for you as long as you own it, and because you bought and are servicing your vehicle all at one location, they will know your car just as good as you do. You will not get any of this by purchasing a used vehicle. If you need it, you can get decent financing from a dealership as well. Obviously, if you can afford to avoid financing, then please do, but you can often find a dealership willing to give you a loan at 0% for 3-5 years. So if you have the cash for the car, great, take the financing anyways, put the money aside and keep the interest while you pay off the car.
Better quality
It used to be that a “base model” vehicle would be very bare bones. Now you can get a “base model” vehicle with air conditioning, a stereo system, power windows/locks, the whole works. As technology has improved, manufacturing costs have lowered, and now it is practically as expensive to get a car with roll-up windows as it does one with power everything. Getting a newer vehicle increases the chances that you’ve purchased a better quality vehicle. One general rule of thumb that can help you avoid some potential headaches is to avoid purchasing the first year of a model that just came out. For example, if Honda makes a new model for 2013, it’d be better to wait for the 2014 version where they’ve had a chance to work out some of the kinks. There are exceptions, of course, where even the first year’s model is a good and reliable vehicle, but if you’re buying a new vehicle it is wise to avoid being that guinea pig.
As a general rule, no matter how I try, I find it hard to justify ever leasing a car. I like to make sure I see any argument from both sides, but leasing a car just never makes sense to me. How do you approach buying a vehicle? Which argument are you behind?
Comments
There is a reason to lease a car and here it is. If you own an incorporated company (for my example i will use a company that holds real estate), then in Quebec you get taxed 46% on the rent profit you realize after all the expenses. If you then decided to pay yourself through dividends to get that money you will get taxed again when you receive it as income at a personal level (there is then a subsequent tax break of around 20% at the corporate level but this is unimportant for this example). Lets say after all that on 1000$ profit in the corporation, you end up with 405$ (assuming 25% personal tax) in your personal account. Now you take that money and you save it to go buy a car.
If instead, you lease the car to the corporation then that vehicle can be considered a company expense (depending on what your company does, but for a holdings company it can be used to “go monitor properties”. Which means you have access to 1000$ a month worth of potential leasing ability. If you then lease a car for lets say 400$ a month, then you end up with 600$ of profit, after all the taxes at the personal level (using the same numbers as above) you would end up with 243$ personally.
Bottom line, you end up getting a vehicle that is leased at a higher cost then you would of had money if you decided to take the cash. In this sense it is obviously better to lease it then to save the money and buy.
You could of bought the car at the corporate level and carried the loss forward. However this would not of given you anything more in terms cash on hand. Because the 243$ that you end up getting personally would not exist (you would be using it for the loan) and you would not have that opportunity to use the cash for other investments, or your day to day life.
Joey
I also forgot to mention, the advantage of having it under the corporation is the tax break in terms of all repairs and upgrades done to the vehicle, however insurance cost may be slightly higher. which i did not factor into my equation above.
Thank you, Joey, for explaining this. We lease and my husband has always said that it makes a lot of sense (we have a ltd company) but I never understood how. Apart from all you said now we have an option to buy the car – so we shall knowing that it if good and it fits our needs.
I also agree with the three reasons why it makes sense to buy a new car. If we go beyond the immediately financial it also saves loads of hastle with maintenace, yechnical check ups and straight forward braking down.
Very practical advice. Buying a new car can make sense in the right circumstances.
I love this article and the idea that new cars may be of value. If you can find your favorite make and model of vehicle that is built with quality and value, it will keep you away from many potential and required mechanical repairs. However, if you do buy a used car, find a mechanic’s shop you can trust then you’ll probably be in goods hands, unless the car requires some major repair overhaul.
I can’t agree with you more when it comes to leasing a car – it’s a big waste of money. Buying new – I agree that new(er) is better, but I don’t know that brand new is the best. I bought a car that was a few years old with very low mileage and I made sure it’s reliable (it’s a Honda Civic – can’t get more reliable!) and I anticipate it lasting for another 8-10 years.
We just bought our first brand new vehicle. We needed something to run a lot of miles on, and we plan on keeping it likely for a decade. I just can’t be bothered figuring out if the loss on buying new and keeping for 10 years vs buying 2 years old and keeping for 8 means I screwed up financially.
I also wanted a very specific vehicle. I can get that with a new vehicle, less so on used. I didn’t want to pay for all the fancy comfort options, but some things were a definite requirement that I’d have had a difficult time sourcing out in the used market.
And because I’m keeping it for so long, buying new I had the opportunity to start the maintenance properly right from day 1. Synthetic oil changes on a regular basis, etc. Stuff again I’d have not found in the used marketplace.
other than that, a 2 year old car is still a good financial deal in most cases, been doing that for a long time.
It is very true that buying a new car will have better service and can be ensured that the car you buy will not have problem (provided that you are not buying off a dodgy dealership). I faced some problem years ago when buying 2nd hand car off a private seller. The car is looking great apart of few scratches. But 2 months down the road, i was told by my mechanic that i need to replace the wheel bearing (cost me few hundred dollars), then another 1 month or so, my air conditioning is not working, and my mechanic told me that there was a leakage under the dashboard. It is very frustrating as i keep paying extra after buying this car. So i would say, if you are not tight with your budget when buying a car, buy a new car off a proper dealer.
These are all very valid points. Buying a second hand car of course also has its advantages, but the pros of buying new often outweigh the cons in the long haul.