The choice between a newer car and an older model ultimately depends on your individual needs and priorities. If you prioritize the latest technology, safety features, and peace of mind of a warranty, a new car might be the way to go, even with the higher upfront costs and potential auto insurance costs considerations.
The rule recommends making a 20% down payment on the car, taking four years to return the money to the lender, and keeping transportation costs at no more than 10% of your monthly income.
The ideal car age to buy, in order to balance depreciation and repair costs, is typically between 3 to 5 years old. Here's why this range is often recommended:
In summary, if you prioritize avoiding debt and minimizing costs, an older car paid for in cash may be the best option. However, if you value reliability and modern features, financing a late model car might be worth the extra cost.
A new car is likely to experience more depreciation.
As we've mentioned, new vehicles are prone to significant depreciation, especially in the first year. Considering that, you're running a higher risk of ending up underwater on your auto loan, meaning you'll owe more than the vehicle is worth.
This depends on your budget, preference, and intended use, but if a car has high mileage, the wear-and-tear could cause bigger problems than a well-maintained, low-mileage car. Not all cases are the same, but mileage is a bigger factor to consider than age.
A 2 to 5-year-old vehicle is often considered the “sweet spot” for used car purchases, but be sure to do your research and consider all relevant factors to make the right choice for your needs and preferences.
Within the first year, many cars will lose up to 20% of their value. After that, they may lose about 15% more per year until the four-or five-year mark.
How much should you put down on a car? A down payment between 10 to 20 percent of the vehicle price is the general recommendation.
To apply this rule of thumb, budget for the following: 20% down payment: Aim to make a 20% down payment on your new car. 4-year repayment term: Choose a repayment term of four years or less on your auto loan. 10% transportation costs: Spend less than 10% of your total monthly income on transportation costs.
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900. However, every person's finances are different and you might find that a car payment of approximately $600 per month is not affordable for you.
Buying a used car can save you money, but you'll want to check the vehicle's age and the number on its odometer to get an even greater value. According to Autotrader, the best used vehicle should be between four and six years old, and have less than 50,000 miles.
With newer cars, manufacturers are constantly going in and redesigning parts in order to meet constantly changing customer demands. This becomes not the most reliable, because the parts haven't really been tried and tested to the extent that they used to be.
In general, auto insurance for older cars may be cheaper than insuring newer vehicles of the same make and model if the used car is cheaper to repair or replace. A car depreciates in value over time, which lowers the maximum amount an insurance company would have to pay in the event of an accident.
The optimal time to purchase a used car is typically between 2 to 5 years old. Within this age range, the vehicle has already experienced the most significant depreciation, yet remains relatively new and in good condition.
In our secret shopper comparisons, CarMax gave us the best value for our vehicle. While it's worth getting quotes from multiple sources, our team found that CarMax offers competitive rates for used cars.
For the most part, you want to look for low mileage used cars. There's no rule to how many miles on a used car is too much, but by attempting to stick to the 12,000 miles per year rule is a great place to start.
Vehicles 2-3 years old have newer safety features and fewer age-related repairs but have higher prices. Used cars 5-7 years old typically have lower prices while still having modern features that impact your daily driving experience. They might need repairs every couple of years.
If reliability and safety are paramount, a newer car with moderate mileage might be the ideal choice. This ensures access to the latest safety features and improved fuel efficiency while minimizing the risks associated with aging components.