New cars are more expensive than you think.
Getting a new car is quite the experience. You're greeted by a well-dressed, fragrance-wearing person eager to shake your hand. There's also a fancy showroom with free soft drinks, and come on, you can't deny that new car smell. Then, when it's time for you to pick up your car, it's in perfect shape. But, as nice as all of that is, and believe me when I say I think nothing beats a new car smell, it's not worth the price you pay. After all, the rumors are true: New cars depreciate the minute you drive them off the lot, and if you ever take a minute to look at the numbers, they are staggering.
According to the current rate of depreciation for a new vehicle, all it takes is 12 months of ownership before your new car loses approximately 20 percent of its value. After that, the vehicle will depreciate at 10 percent per year. Then, after five years of using your vehicle, your car is only worth about 40 percent of what you originally paid for it.
Of course, those are generalizations. Some vehicles depreciate at different rates and for different reasons (e.g., AWD vehicles hold their value a little better since they're in-demand and the same is true for trucks and SUVs). To get a little more granular, let's look at a 2019 Audi A4, a car commonly seen roaming the streets of Denver.
If you were to walk into your local Denver Audi dealer, you can expect to write a check for (or take out a loan for) $51,425 for a brand new Audi A4 2.0 T Premium Plus Sedan with a few options. Once you've had it a little while -- let's say a year -- that same car is now worth $41,140, or a total depreciation of $10,285. After five years, that same A4 is worth about $20,570.
So what should you do? Well, if you have a lot of money and you want that new car smell, go for the new car. But if you're like me and you don't think it's worth the extra money (about $5,000 in the case of the Audi), buy used. Modern cars have come a long way, and most brands are reliable enough, however, the real benefit to buying used is that you don't have to take the initial depreciation hit, which can mean the difference between being upside down in a loan or not.
What are your thoughts? Let us know in the comments below!
