The True Cost of Buying a New Car
One of the questions we get quite often at Precision Automotive in Poway, CA is “Should I keep my car or get a new one?” With rising costs of repairs and the complexity of diagnosing and repairing modern vehicles, many of our Poway clients wonder if it is worth fixing their old car or buying a new one.
Car companies do an excellent job marketing new cars. They sell the experience, luxury, reliability, safety, and of course, the warranty that comes with it. Most of all, they sell the prestige of having a new car to show off to your friends and family to look “successful.”
The biggest cost of buying a new car might not be what you would expect:
Financial advisors often mention vehicles are in the category of a “depreciating asset” meaning it is an investment that loses money. Most vehicles, unlike stocks, bonds, and real estate, lose value over time. This makes them a poor investment, vehicles are “consumed,” bought, and sold as they age until there is no value left in them and they are sold for scrap.
The depreciation on a new car is scary, do your own research, but I have found the average new car depreciates 20% in the first year and 40% after 5 years! That is tens of thousands of dollars!
But that is not all… there are a lot more hidden costs in new car ownership:
If you were driving an older model ‘paid for’ car that you own outright with no loan, chances are you have a ‘collateral only’ insurance policy, or you have comprehensive with a rate based on what your car is worth. When you buy a new vehicle, and it’s financed you will have to have full coverage and at the replacement value of your new car. This often adds a few THOUSAND in yearly insurance costs.
A smaller but still significant cost is a 7.75% sales tax on the purchase price. California sales tax rate is 7.75%, so on the average vehicle, you will be paying upwards of $4,000 to close the deal. This is incurred upfront.
Also in the category of annoying extra fees is your registration. Vehicles registered in Poway and all of California will incur a yearly registration fee as a percentage of the purchase price, and subsequently the vehicle’s value. This will be a few hundred dollars more than your current car because your old car’s value has been reassessed over the years as it depreciated.
Other items to consider include:
- Cost of financing: If you finance that new car, you are paying interest. At 4% on the average vehicle sale, you are paying $4,000 over the life of the loan
- Dealer extras: Dealers do not make much money on the sale of the car, they make most of their money on the extras, the extended warranty, theft protection, paint protection, gap insurance… this list goes on. This can easily add thousands of dollars with little to no value added.
In conclusion, while the allure of a new car is tempting, it's essential to recognize the true costs beyond the initial purchase price. Here at Precision Automotive in Poway, CA, we can help you decide whether to keep your old car or buy a new one. Understanding the long-term implications empowers individuals to make informed choices aligned with their financial goals, ensuring that the allure of a new car doesn't overshadow its true cost. Reach out to us today or conveniently schedule an appointment online!