Is Buying a New Car Ever a Good Investment?

by Krantcents · 9 comments

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Many financial experts reject the notion of looking at a new car as an investment in the same way you would with a house. Unlike real estate, new cars tend to depreciate in value. In fact, they can lose 30-40% of their value within the first three years of ownership. Because of this fact, used cars are often seen as a better investment. They may have a few more miles on the clock, but used cars often offer all of the same high-tech gadgets and safety features as brand new models and have a much lower sticker price. As a result, is there any reason to buy a new car?

Types of Investments

As mentioned above, cars are not investments in the same way as real estate is, or even as stocks are. They can be compared to something like an education, in that you invest in the car as a way to get to work or advance your position in life, but it won’t necessarily grow in value. It’s important to recognise that there are different types and values of investments, so although a new car won’t appreciate in value doesn’t mean it’s not worth your time. Whether or not it’s the right investment for you will depend on your financial goals and lifestyle needs.

Increased Used Car Values

Another factor to consider is the skyrocketing value of used cars. While in the past, the rate of depreciation would continue well into a used car’s lifespan, the heightened demand for used cars at the moment means that you can sometimes halt this in its tracks. Although it may not be possible to sell a used car at a profit unless it is a collectible, you might be able to break even and break even. For instance, if you purchase a three-year old Skoda Yeti at Carsales and then wish to trade it in two years later, the value may change very little in those two years. However, if you buy a brand new Yeti and sell it two years down the line, you will almost certainly take a loss.

Features in High Demand

You can increase your chances of a new or used vehicle holding its value well over time by choosing a model with features that are consistently in demand. Hybrid cars like the Toyota Prius are a good example of this. A Prius that’s about a year old may still hold almost as much value as a new one, because these cars are currently in such high demand. If you want to increase your chances of a new car being a good investment, you’ll want to research the current market and forecasted trends. Autonomous safety features, green-friendly features, and internet connectivity are all high on the list at the moment.

The Bottom Line

There are many reasons to buy a new car. You may want to take advantage of the new-car guarantee to avoid costly service charges, or you might be looking for a car that you plan to hold onto for the long term. However, in most cases a new car may take the backseat to a used model from an investment perspective. It’s worth looking at all options carefully as well as what models are in high demand, in order to minimise depreciation and maximise value.

Photo by:  Flickr

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Michelle @fitisthenewpoor December 21, 2013 at 8:03 am

We made the mistake of buying a new car. Our intention is to run it in to the ground. However, we could have bought the same car, one year old with 10k miles on it and have saved $5k. We’re kicking ourselves now!

Krantcents December 21, 2013 at 9:47 am

There are always deals, but you could have missed it too.

Ragnar December 21, 2013 at 10:31 am

If you’re a gambler, you can try and buy new or nearly new vehicles as collectors items if you have the space and wherewithal to maintain it. The cliche is the limited production vehicles of the past, like late 60′s Shelby mustangs or almost any Ferrari from the 50′s, 60′s and 70′s.

The challenge is that the buy-in on these “future classics” is high and it takes 25 years before their value really starts to pop. That said, when the value starts to pop, if there are more examples still intact than originally thought, value can depressed longer (see the Mopar craze rollercoaster in value and the way corvettes have leveled out).

Opportunities for future classics you can find right now would be the H2 Hummer, the last year Saturn Sky (get the top end one with the turbo), the Saab 9-5 Aero, the mid2000′s Pontiac GTO. Those are arguably the last, best models from discontinued auto companies and will be sought after collectibles in 25-30 years time. Problem is, they’ll all be expensive to keep up and store until then.

Krantcents December 21, 2013 at 10:40 am

I think if you do the research and know a lot about cars, it is not a gamble! I would rather buy a classic car and at a good price and have it restored. It is a personal choice.

Pauline December 21, 2013 at 11:28 am

My boyfriend has not paid for a car in year, he always manages to buy good, reliable models at a good price and sell them at least at what he paid for. That is pretty impressive. As far as considering that an investment, maybe not but at least it’s not a money drain.

Krantcents December 21, 2013 at 3:01 pm

You are way ahead if you can buy cars use them and get your money out.

Adward Wilson January 3, 2014 at 1:44 am

Before you start shopping for a new car, decide on what you need. Search the web in order to learn about great deals. Make sure you know about the dealer prior to negotiating for a vehicle. This will help you to negotiate the best possible price.
Adward Wilson

Krantcents January 3, 2014 at 8:07 am

I bought a new car (very popular car) last year for deal invoice. You have to look for use every advantage and keep it forever.

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