Sometimes buying a used car can be more trouble than it’s worth.
This is another subject where everyone you ask will have their own opinion on what is best, which is usually driven (pardon the pun) by their previous experience. For example, those who have only ever had trouble with second hand cars will tell you to buy new.
Ultimately though, whether it’s more cost effective to buy new or used really comes down to the specific car you are interested in and the specific deals available.
Generally speaking, a new car can lose a lot of value as soon as you drive it out the door, so for that reason I tend to favour used over new. But on the other hand, there is always a risk with a used car that it comes with its own problems.
So you may need to compromise. Perhaps looking at a used car that is an ex-demo or still fairly new with a warranty could be a happy medium. That said, here are the steps I would take when making my decision.
Step 1: Decide on budget
How much can you really afford to spend? Ideally I would avoid obtaining finance but if you have no other choice make sure you check out the fine print (eg restrictions that apply based on the age of the car).
Step 2: Do some research
Which cars do you like that fall in that price range? Make a list of year, make, model, is it new or used, and price. I’d read up on their features, look at reviews by other buyers and do a test drive where possible.
Step 3: Talk to a mechanic (or two!)
It’s amazing how many people, especially women, skip this part.
Your mechanic is a goldmine of untapped car knowledge and information. I’d find out in their experience which makes and models have a good track record for low maintenance costs and fewer problems, and which ones are known to be the ‘problem children’ that you should avoid!
Step 4: Do the math
Now that you have a short list of makes and models, take a look at what deals are around for the cars that are left on your list and compare them to RedBook to see just how much value you would lose in depreciation if you bought new vs old.
Then add up all the costs of ownership that you have identified both for the new and used car and take it from there.
For example, say you hope to own the car for 10 years. Add up all the likely costs including the purchase price, maintenance costs (use your mechanic as a guide and the car dealership if they include free or capped maintenance), depreciation (in other words, what’s the likely resale value in 10 years time) and see which one comes out ahead for you.
LISTEN: Mamamia Out Loud unpack the finance book EVERYONE is talking about (post continues after audio...)
Whatever you decide to do, remember the golden rule of building wealth is to spend as little as possible on items that lose value (like cars!) and put your money towards assets that will give a return on your investment.
As a wise woman once said: buy the cheapest car your ego can afford!
Good luck and drive safe!
What tips do you use to chip away at your debt?
This post originally appeared on Women with Cents and was republished here with full permission.
Natasha Janssens is the founder of Women with Cents and finance expert. Here's more from Women with Cents.