The Pros & Cons of Buying a New Car
ÂRead below to discover more about the advantages and disadvantages of either decision.
The Pros of Buying
The biggest advantage to buying is when it's paid off you get to keep the car; you don't have to make any more monthly payments. Outright owning your vehicle makes it easier to handle your monthly budget because there's one less bill to pay. It's a good idea to take advantage of the fewer bills by saving extra money for an eventual replacement or repairs. Additionally, when you are paying monthly payments you are building equity in property that can be sold when it's time to replace the vehicle as long as you don't owe more than the vehicle is worth. If you own the vehicle and decide you want to sell it at any time without having to pay an early termination penalty. Owning is really beneficial for drivers that put a lot of miles on the car because there are no mileage restrictions. As an added bonus, some brands offer free maintenance plans with new vehicles which can save you money. Additionally, if you have minor mishaps with a vehicle you own like stains on a seat or a minor scratch on the body, you don't need to worry about paying to fix it if you can live with it. Finally, owning a vehicle comes with a sense of prestige for many people that you can't put a dollar value on. You also can save money by buying a lightly-used car that's already gone through its most substantial price depreciation phase.
The Cons of Buying
The ultimate con of buying a vehicle is that you're taking a risk on the resale value of the vehicle. A car is a depreciating investment that becomes worth less over time unlike a house or 401K that will likely gain value over time. If the value of the vehicle significantly drops, you may find yourself in a negative equity situation where you owe more on the loan than the car is worth. If you try to sell the car while you owe more than it's worth you'll end up having to pay money instead of get money for the exchange. The value can also be a problem if your vehicle is destroyed and the insurance only pays you the value of what the car was worth. Additionally, you may have hassles when selling the car; you're at the whim of whatever people are willing to pay for it.
From a financial standpoint, older cars tend to cost much more in maintenance than newer cars because the parts have started to degrade and need replacement. Buying may also come with a major hurdle for people who don't have a lot of savings: you may need a substantial 10-20 percent down payment to buy. The larger down payment can be a problem for people who can easily afford payments but don't have a lot of cash on hand. Longer loans mean you're on the hook for more than three years of payments. A five-year or longer loan means you could be paying for expensive maintenance while still paying off the car. You may also end up paying a substantial amount in interest for a longer loan.
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