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 or even better at online sites. 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.
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