It is a fact that a car nowadays is a necessity, especially if you have a family, or you have to commute to work. Today, if you buy a second-hand car, the deal could be quite affordable, however, some people enjoy cars a lot, meaning that they are striving for a completely new one. So, are cars bad investments, and what would be the reasons for that?
Nowadays, cars are not really regarded as investments since they are depreciating assets considering they lose their value over time. This especially refers to new cars since they lose their value the first year you buy them. Once you take them out from the store, your car goes from new to used.
In this article, I will talk about cars and their real value. I will discuss the notion of car investments, and whether it is a real and wise investment. You will be able to make the difference between a good and a bad investment, and see for yourself whether you should invest in a new car or not.
Should You Invest In a Car?
If you are looking for something that will not lose value for a long time, such as a collectible or a classic, then you might consider investing in a car like that. These kinds of cars are always wanted by car enthusiasts, meaning that you could easily sell them when the time comes, and you can be sure that you will get a good deal out of them. However, you are still going to have to spend a great deal of money to purchase the collectible in question, so is it really a good investment?
If you have some extra resources on the side to spend on a thing like this, then the answer would be positive. You might be able to get a good deal and earn more from the investment. But, you have to take into consideration that this refers to cars that are seen as classics, so they would not lose the value that easily, meaning you have to be careful in your selection.
On the other hand, if you are not in a situation where you can spend money on a classic or a collectible, then you should opt for something pre-owned that has already had its decrease in value. However, even though the car you chose has taken the initial hit of depreciation, you still need to ensure that it is new enough, so you will not need to spend some more money on repairs and similar things.
In other words, this means that if you make your choice carefully, you will make yourself a good deal. You will have a car that you will be able to drive for a long time without any serious defects, so you will not be required to make any changes to it. However, if the car is old, although cheap, you will be faced with major issues whose repairs might cost even more than the car itself.
Additional Reasons Not To Opt For A New Car
If the explanation above was not a good reason for you, then you might need some additional things to take into consideration before you make the decision.
The New Car Hit
As I mentioned before, if the car is not a collectible or a classic muscle, then every other car will lose its value quite fast. As a matter of fact, once you take your car out from the store, it loses its status of ‘new’ to ‘used’. This is referred to as ‘the new car hit’, meaning that in the first year you use your car, it will start decreasing in value quite fast.
On average, a new car loses 10% of its value in the first year after it is taken out from the factory. This percentage rises to 15% each year you drive your car, meaning that in four years your car will lose almost half of its value. After 10 years of driving it, it will lose almost all of its initial price, meaning that you will not get a good deal when deciding to sell it.
CPO Certified Cars
It is known that when you take a car from a factory, it comes with a warranty, and the maintenance costs are quite lower. However, in the first years, you might not deal with any major issues, therefore the lower costs would not be of the greatest benefits. In this case, a certified pre-owned car would be a better option than a non-used car.
However, you need to make sure that when you are buying an already used car, it should be certified, i.e. it should have undergone a certain detailed inspection. You will be more secure buying a certified car and giving a little bit more money, than opting for one that does not have a CPO certification.
The maintenance for certified CPO used cars is also lower since most automakers offer good deals for these types of cars. With a CPO, even though you are buying a depreciating asset, you can be sure that you will not spend a lot of money on maintenance. The cars that are not certified oftentimes might indicate issues that might cost a lot considering that they do not have a CPO.
If you decide to buy a new car right from the store, you will be required to also buy insurance whose costs are quite high in comparison to those for a pre-used car. Since you have a new car, whose worth is quite high at the moment of purchase, it is understandable that the insurance will cost much more than regular.
The expensive insurance for a new car might get you stuck with monthly costs that can be quite high. Since we are talking about monthly costs, they might seem low since you are paying each month and not the whole sum at once. However, if you make the estimation, you will see that you are wasting a whole bunch of money.
As you could see, buying a new car is not such a good investment, and some people do not even consider it as an investment. Therefore, taking all costs and value into consideration, it is better to opt for a pre-used car.