Used Cars have a stabilized rate of depreciation
and lower initial cost making them a far better value than new ones.
New vehicles lose an average
of 20% of their value the instant they are driven off the dealership lot
and as as much as
50% over the first two years depending on the make of vehicle and how many miles
you put
on it yearly. Then factoring in your financing, which could add another $1000 to $3000 to
the total
you can see where on a $30,000 vehicle you could throw away $15,000 - $18,000.
Now add in higher insurance cost higher taxes...
You get the picture... this is a lot of
loss.
Another drawback occurs if a new car is totaled in an accident.
Often the insurance
is not adequate to replace the car.
When buying a car, the interest on the loan is
paid off faster than the principal (the vehicle itself).
Less money has gone to the
reduction of the purchase price, and insurance only covers the vehicle value,
not the
payoff, so there can be a cash shortfall.
This short fall lead to the development of yet
another insurance product called Gap insurance.
Used Cars rate of depreciation is not uniform. Some popular cars (Honda
Accords, for instance) hold their value much better than others (Ford Taurus - Jeep Grand
Cherokee). When a car model is totally revamped, especially if the name is changed,
the older version usually drops in value more quickly. Those used cars are generally
good buys. Because late-model (2-4 year old) used cars have not declined
significantly in either mechanical reliability or appearance, they remain the best
bargains.
Off-Lease Used Car Bargains
Leasing contracts demands regular upkeep, off-lease vehicles can be a good place to start a used-car search. Since leasing has become popular, large numbers of well-maintained, 2- to 3-year-old cars are coming off lease in increasing numbers.They often times will still be covered by the remainder of their original warranties. To keep that vehicles moving, many manufacturers offer special pricing to enhance the appeal of those vehicles.
Program Cars
"Program"
vehicles can be a mixed blessing.
Program cars may be a dealer demonstrator, a company executive's car, an off-lease
or fleet vehicle. Even former rental cars sometimes get the title. Rental cars
and former fleet vehicles are the least desirable types of "Program Cars."
Some are overworked and under-maintained, while others have had regular oil changes, tire
rotations, and other preventive maintenance. It can be hard to tell whether the company
followed the manufacturer's new car break-in and maintenance schedule.
At the wholesale level, rental cars are usually worth 15% to 20% less than a comparable
new car trade-in, for what ever reason: people who rent vehicles often mistreat them,
maintenance records may not be kept. If you are looking at a former rental or program car,
ask to see its maintenance records, and don't be surprised if there is't any. Insist
on an independent mechanical inspection, and try to find out which rental company owned it
initially. Finally, consider your options. Is this car priced significantly lower
than a factory
certified model at another dealer?
High-Mileage Vehicles
Are you willing to take a
chance to save yourself many thousands of dollars? Safety-conscious people on a
budget might want to consider late-model cars with high miles. The more miles a vehicle
has on it the shorter its functional life will be no matter how well cared for. But since
an average car lasts for 150,000 miles, a vehicle with 75,000 miles can still give you
years of useful transportation.
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