As we step into 2025, many people are considering whether purchasing a new car is a wise financial decision. The reality is that buying a new car often comes with significant financial drawbacks, primarily due to rapid depreciation. According to data from Kelley Blue Book, a new car typically loses 20-30% of its value within the first year, and this depreciation can reach 60% or more over five years.
Financial experts like Dave Ramsey and David Bach advise against buying new cars. Dave Ramsey has famously stated, “The biggest wealth-building tool you have is your income. And a car payment is a large part of that.” Similarly, David Bach notes that the steep depreciation of new cars makes them a poor financial choice for most people.
Instead, experts recommend purchasing slightly used cars, which can provide similar benefits at a fraction of the cost. By buying a car that is one or two years old, you avoid the steep initial depreciation while still getting a vehicle that is often in excellent condition. This approach can save you thousands of dollars and make a more significant impact on your financial health.
Moreover, financing a new car means paying interest on a depreciating asset. This can add to the overall cost, making new cars even more expensive in the long run. According to Bankrate, the average auto loan interest rate for new cars was 4.21% in 2024, compared to 6.19% for used cars. While the interest rate for new cars is lower, the higher price and rapid depreciation make used cars a better overall value.
In conclusion, while the allure of a brand-new car is tempting, the financial implications are considerable. Opting for a slightly used car can provide a more financially sound choice, allowing you to preserve your wealth and avoid the pitfalls of rapid depreciation.
Sources:
https://www.kbb.com/car-news/all-the-latest/depreciation/
https://www.ramseysolutions.com/debt/the-truth-about-car-payments
https://www.bankrate.com/loans/auto-loans/rates/
https://www.investopedia.com/articles/personal-finance/070116/10-ways-buying-used-car-cheaper.asp