If you ever bought a New Car, you know that depreciation will devalue the car over time. The steepest depreciation occurs in an auto’s first two years, when its wholesale value plummets 30 to 40 percent of its original sticker price.
So it’s not long before the value of a new $21,000 car drops by $6,000 to $8,000. By buying used, you let a car’s first driver deal with that big depreciation nose dive. You get the car you want without the financial strain or the hassle of being several thousand dollars upside down on your loan.
A new $28,000 car will lose about $17,000 of value in the first four years you own it.
If you don’t have $10,000 available cash and must purchase a car, finance it for 3 years but keep it for 6. Your monthly payment will be around $300. Once paid off, save the $300 a month you were spending and save it for another 36 months. In three years time you will have about $11,000 cash plus the value of your trade-in. Buy a used car for the $11,000 cash, invest the money you received from the trade and continue to add $300 a month for a future purchase. After 6 years you will have over $25,000 cash available for your next vehicle purchase.