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It Is Not a Sin to Buy a New Car

Is it ever OK to buy a new car? You won’t find many people in the personal financial space advocating that practice. Why? Because a car is a depreciating asset, meaning that it goes down in value over time.

buy a new carHow fast do cars depreciate? Figures vary based on the make and model of the car and market conditions. But most estimates say that cars depreciate around 20% the first year, and 15% more each year in years two through five. So you can expect a new car to be worth around 40% of its purchase price after 5 years of ownership.

So looking at those numbers, this should be considered the cardinal personal financial sin. Anyone considering buying a new car instead of a used one runs the risk of being called a foolish, image-conscious over spender.

Used car purchases always outpace new car purchases. But still, data from 2020 shows 14 million new light trucks and automobiles were purchased in the United States.

So, is it really a big a deal to buy a new car? A large segment of society doesn’t seem to think so.

I’ll answer my own question by saying “It depends.”

Buy a New Car: Want vs. Need

I don’t believe anyone can justifiably say they need a new car. There will always be a used alternative to satisfy any life scenario. Even a family of twelve can find a used passenger van on the market.

Clearly a new car is a want and I’m perfectly fine with that. People should not be condemned for wanting something new. My wife and I have purchased many new things over the years like clothing, furniture, appliances, computers and iPhones.

Could we have found used alternatives somewhere and saved some money along the way? Absolutely. We knew that even these items would decrease in value over the years as they age.

But we really wanted a new one and we saved the money to buy it with cash.

Related Content: Sinking Fund: The Best Way to Save Money for Anything

Which leads me back to the question I posed at the beginning – Is it ever OK to buy a new car and if so, when might that be?

You Can Buy a New Car If…

Buying a new car isn’t a sin. But there needs to be guardrails or a set of standards put in place to guide the decision. Because a car’s value depreciates so quickly, you need to pause before making such a purchase. It really may not be a wise move financially.

I contend that if a person meets these four standards then it’s entirely acceptable for them to buy a new car:

Have the right mindset

This purchase is not an investment. Don’t trick yourself into thinking it is one. By no means will this purchase be going up in value.

To put some numbers to the percentages I noted above:

A $40,000 new car will be worth $16,000 in five years.

A $30,000 new car will be worth $12,000 in five years.

Ouch! That is an incredibly steep decline.

So in order to purchase new, you must first have the right mindset going into the purchase. If you are looking for an investment, this isn’t it. Expect to lose money on the deal. If you can’t deal with that thought, then definitely stick to used.

Fitting the monthly budget

Unless you pay with cash, those monthly payments won’t be the only thing to deal with in your monthly budget. New cars bring with them additional expenses. So, making sure the monthly budget can handle these expenses should be a top consideration.

What expenses may increase when you buy a new car? Insurance premiums may likely rise, especially if you’ve hit a mid-life crisis and upgraded to a shiny, two-door sports car. It would be wise to compare auto insurance rates or check with an insurance agent before purchasing a new car to see how the decision may impact your yearly premium.

Gas expenditures may also increase depending on the type of car being purchased. If you are going from a Honda Accord or Toyota Sienna to a GMC Yukon XL, expect your monthly gas bill to almost double.

Some states also require ad valorem taxes to be paid each year on the value of your vehicle. The newer and thus more expensive the vehicle, the more in taxes you will pay.

Length of ownership

In order to offset the affects of depreciation a little bit, purchasers of a new car must be willing to own that car for at least 10 years or 200,000 miles.

Because depreciation occurs rapidly, jumping in and out of new a car every three to five years will be extremely painful on the wallet and negatively impact your net worth. That financial hit can be minimized to an extent the longer one owns the car.

Related Content: 4 Big Mistakes of My 20s That Affected My Net Worth

Be a millionaire

If a person has a one million dollar net worth they can afford to buy a new car. Net worth is defined as assets (what you own) minus liabilities (what you owe). If that number calculation is greater than one million dollars, you are a millionaire.

Given the historical average annual returns of the U.S. stock market, someone with this level of net worth can absorb the hit and recover from a $50,000 new car purchase. It’s still a lot of money to lose. But the percentage decline of the vehicle vs. the net worth figure makes it doable so as not to break someone in this financial position.

And one could argue that most people with this amount of wealth have earned the right to make this decision based on their hard work, wise investing and personal discipline they have shown throughout the years.

Tips to Save Money When Buying New

So, if you want to buy a new car and meet the above standards go for it!

But, we still want to stay in the mindset of getting the best deal and saving money on it, right? So here are some suggestions to reduce the total cost of that new car.

Buy at the end of the year

The end of the year is a great time to find sales at car dealerships as they look to cash in on Christmas shopping.

Buy after the new models have arrived

This usually happens earlier in the calendar year. Try to pinpoint the transition period from last year’s model to the new model for the vehicle you are interested in purchasing. Dealers will give incentives to move the prior year models off the lot.

Pay with cash

Logic assumes that you will make this new car purchase with cash since you are a millionaire. Since that is the case, you may be able to negotiate several thousand dollars off the purchase price because you don’t have to qualify for financing.

Be willing to travel to another market

Shop around and don’t be afraid to travel a long distance for a new vehicle. We purchased a minivan once in Birmingham, Alabama because we found one several thousand dollars cheaper there than in our local market of Atlanta. It was worth the drive there and back for such a steep savings.

There is great wisdom in purchasing a used car. Statistics show the terrible financial hit when purchasing new. And, with new cars, you are more likely to go into debt to purchase it. Staying out of debt is one of the hallmarks of those who build great wealth.

Related Content: How to Get Out of Debt and Win in Five Simple Steps

But buying a new car isn’t a sin either. You won’t be wrecking the future if you’ve saved the cash, planned wisely and are in a financial position to deal with the consequences of holding a depreciating asset over at least a 10-year period. If that’s you, go for it!

Leave a Comment or Answer a Question Below: Would you ever buy a new car, even if you had one million dollars? What are some other tips for negotiating a car deal? What is the worst car purchase you have ever made?

Photo courtesy of Benjamin Klaver on Unsplash

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  1. My wife and I are planning to buy a new car for our family but other responsibilities for the kids will always be our priority. If time comes, at least we will retire debt free.

  2. We are new car people, honestly. I always believe “If it’s such a great car, why did they sell it?” We haven’t had much luck with picking out used cars, we always seem to get pieces of crap, so generally we tend to buy new and then drive it for 10 or 15 years.

  3. Michael S says

    Good ideas in the article. I too buy used. I would like to mention a couple things.

    1. Buying used isn’t always the best idea for someone who has to drive a lot of miles, and doesn’t have cash to buy it. I am putting a lot more miles on my van than I thought. I will end up being over 200k miles before I even pay it off. Buying New would have fixed the mileage issue, as far as not hitting 200k and still paying, but I guess I could also apply the difference I would have in a new payment to the current van and pay it off faster. lol My situation is I don’t have the money for a new car payment. 🙂

    2. Someone has to buy a new car for you to buy a used car. If everybody took this advice, nobody could take this advice. haha!

    • The problem is most people can’t afford to take the financial hit of buying a new car. They depreciate way too quickly.

      We just bought a used Suburban that was only two years old. The price? Literally half of what a new one costs. And we saved for almost 3 years in order to buy it with cash.

      • Michael S says

        Yeah your right. I can’t stomach to pay that much for a car in general. No matter how rational it may seem, I don’t think I could ever talk myself into buying a new car. People will keep buying new cars, so we don’t have anything to worry about. 🙂

        The other side of this is what car you get. An american made car depreciates much faster than imports in most cases(Major brands). The Toyota Van I got was already 6 years old with 80k miles on it, but was worth about half of what a new one was still. :/

  4. I recently talked my sister out of buying a brand new car and into a 1-year-old used one. I considered this a big win as my parents were advocating hard for her to get a brand new one!

    In 2008 I told myself that I would only buy a new car if it was all-electric, but those models came about faster than I had expected. We won’t be buying a brand new car in the forseeable future or maybe ever. I agree that you need the price in cash and to have a very high net worth to not be much affected by the steep depreciation. It’s not a sin but for most people it’s probably a pretty bad idea!

    • It’s a bad idea for most but the new car smell is so intoxicating. Proof of that need only be seen in the fact they have car air fresheners that put off the scent of a new car.

  5. I think the concept of buying new is fine, but I personally don’t think I’d ever buy a new car. I think it’s foolish. But, hey, I’m sure a lot of things I do are considered foolish by others, too. If someone wants to spend $30 or $50k on a new car, it’s a free country.

  6. At this point I’m happy just getting a “newer” car, really anything under 50k miles seems like luxury to me. We bought our first newer car when my car hit over 220k miles and had some issues. If I did buy a brand new car (something I want to do someday, when it makes financial sense), I would definitely be wiling to drive it for over 10 years.

    • I’m thinking under 50k miles to on our next purchase. When it comes to buying used I think it’s a solid deal if the car you are looking at has averaged 10-15k miles per year. So for example, I wouldn’t probably buy a 2013 model with 35k miles already. That’s been used a lot in less than two years.

  7. Wade @ DestinationFinancialWisdom.com says

    Good information. After 10+ years of used cars, we made the leap and purchased a new 2014 Ford Explorer a few months back. We met all your criteria and decided we wanted a “10 year car” that we could own from the beginning and know the complete history. My wife had to really like it as it was going to be her vehicle. I inherited her 2007 Ford Edge as my daily driver. With only 80k miles, the Edge has a long life ahead. Do I wish I had the cash in my Vanguard taxable account at times? Sure. But we now have a car that we can drive for many years. It doesn’t get 30 mpg, but it is a good mix of size and comfort for us at this stage with 3 growing kids.

    • 10 years really is a magic number for making this work. Of course if you can keep it even longer than that you just come out further and further ahead. All the money you would have spent on car payments for four or five years can now go into investing.

  8. I don’t necessarily think it’s a sin, but I work in the auto financing industry and unfortunately there are too many people buying new cars who simply can’t afford them. I read an article the other day that talked about how the auto industry may become the new subprime crisis.

    • “…too many people buying new cars who simply can’t afford them.” Yes…this is the big problem Ben. Of course, that’s the problem with our culture in general…people buying tons of things they can’t afford.

  9. p.s. may i ask what comment system you have? I need to replace mine, and this one looks like it works really well!

  10. I completely believe you can buy a new car as long as you are financially capable of doing so and you’re not going into debt in order to purchase it. In our case, we’ve bounced back and forth between new and used, but were leaning more toward used bc we really want to save for a house. Can’t afford both!!

    • “…save for a house.” I’d agree that is the more financial wise decision. At least with that it has a chance to go up in value and you are locking away (saving) money as you pay down the mortgage.

  11. I don’t think it is a “sin” to buy a new car. If you are out of debt, can afford it, and don’t hurt yourself financially by purchasing it.

  12. I bought a new car about a year and a half ago and I even financed it! I got a great rate (under 2%) so I decided to finance it and leave the money I would have used to buy it outright to stay in the market earning a higher return. To me, a new car made sense because I got a great deal on it and I keep my cars 10+ years. So while I am in debt, to me, it was a smart financial decision to make.

    At the end of the day, personal finance is personal, so what works for me might not work for others. That’s the great thing…we can all find our own path to financial success.

    • Keeping it for a long period of time is definitely a big part of the equation. That’s become much easier to do with the advances in automotive technology over the last 20 years.

  13. I’ve bought my share of new cars, but after the one we have now, which is going on 8 years old, I can’t see us ever going that route again. I wouldn’t call it sinful, but it would certainly not align with our current financial values. Like you, I don’t have a problem with any purchase a person makes as long as it aligns with their values and they can afford it.

    • I’ve done the same and I completely agree. You can find steals on cars that are just one year old and many times have belonged to the dealer for their entire life.


      • “…find steals on cars…” That’s true Jay. I’ve already seen some great deals on cars that have only 2 or 3,000 miles on them. That’s close enough to new for me.

    • “…current financial values.” And you absolutely have to stay true to your values Kim. They are the thing that keeps you on track from avoided any missteps.

  14. I’ve always been an oddball on this because we do buy new vehicles. But we also follow your rules. We drive our vehicles for many years and we pay cash when we replace them too. My husband made me promise when we got married that besides our home, we would always pay cash for our purchases, even vehicles. For us, it’s a personal preference and we are willing to save our money for it. It’s certainly a lower priority than our retirement or the girls’ college education but it something we willing choose to save for over other things. The biggest problem I see with people buying new cars is they do it because they want it and it’s easy to get a loan for a new car. They don’t necessarily think about how it fits it with their other goals.

    • I agree there are many other goals that should take preference over the type of car one drives. I find it interesting though how people wrap their identity/status up in the car they drive. Especially seeing those with fancy rims, loud stereos and other tricked out car options. It’s a mode of transportation for crying out loud that is losing value every day. Why are you compounding that by pouring more money into it? #silly

  15. I dream about a new car a lot. I guess I’m in the 7 year itch of my current car since it’s turning 8 next month. That being said, I know what I can potentially afford, and know the difference between monthly payment and actually affording it. The car I am lusting over is currently being advertised for $125/biweekly… there’s no way, unless the loan is stretched out over 6-8 year. Ridiculous-ness!

    • I wouldn’t stretch a loan out to 6-8 years. Four years max if you are going that route. We are/have been saving for this current car upgrade for about 18 months. I won’t do it until I have the cash to pay for it outright.

  16. I think it would be really nice to have a new car esp if you pay for it in all cash. I’ll probably have mostly new-to-me cars in the future because I rarely go anywhere but I wouldn’t fault hubs for getting a new car if he wanted one down the road.

  17. We have two cars right now, one was bought new and the other used (from my parents). I would definitely look used first from here on out. The thing that you have to remember is that in order for used cars to be available, someone somewhere must first buy them new….so the situation must be right for someone, or no used cars for you!

  18. I also bought some brand new furniture when we moved into our apartment a couple of months ago and I didn’t blink an eye. It was in the style we wanted, paid for in cash and we knew we’d keep it for many, many years. As for cars or any other major purchase, the important thing is to really evaluate the purchase as you listed. I just worry when people who finance cars for 84 months/7 years; can they really afford the purchase after all?

    • “…people who finance cars for 84 months/7 years;” That’s insane…they can’t afford the car, just the monthly payments. That’s a poor financial decision.

  19. Given the depreciation of a new car, I think that I will stick with those that are gently used. Also, I can’t imagine paying the price that some new cars go for. But I also wonder if the savings in repair bills isn’t something one should factor into the equation on new car ownership?

    • “…savings in repair bills…” Maybe…I think this is becoming less and less an issue though. 20 years ago 100,000 miles was considered the time to get rid of a car. With the advances in technology, cars are lasting much longer and are requiring less in repair bills. I guess I wouldn’t consider getting a new car just because I had several repair bills.

  20. I think it’s fine under the right circumstance and I certainly have done it in the past, but knowing how much it depreciates, I would probably always stick to used cars, but gently used cars.

  21. Your point about a new car being a want versus a need is the main thing for me here. I think if you can afford to buy a new car, with cash, and you want to – then that is responsible and you should go for it! I think the problem arises when people cannot afford a new car but because they want it, they go for it instead of prioritizing their finances. Also, I think it is so wonderful that you and your wife waited to buy a new furniture set until it was something you could truly afford. It goes to show what’s really important in life – and kids and family definitely trump the other material wants.

    • “…when people cannot afford a new car but because they want it, they go for it instead of prioritizing their finances.” You nailed the big issue Natalie! It’s all relative based on the amount of money you have.

  22. I think it’s fine to buy a new car – in fact when are cars absolutely have to be replaced we will most likely buy new instead of used. We drive our cars into the ground and make them last at least ten years, so the depreciation has less of an effect. We also have no desire or need to spend more than $25K-$30K on a car, so the early years of depreciation have less of an impact than if we were spending $50K-$70K.

    • Well the depreciation rate stays the same but the amount you lose isn’t as much. I did some calculations on a 2015 Suburban LTZ and after ten years it goes from $70,000 to around $12,000. It would be worth more at that time than if I bought a 3-yr. old 2011 Suburban (which would then be 13 yrs. old). But you are losing 58k on the 2015 as opposed to around 35k-ish on the 2011. Yikes!

  23. I’m thankful for reminders like these – we can purchase whatever we want and we haven’t actually violated any rules (Biblical or otherwise) unless we don’t have money for that purchase to make sense.

    Congratulations on the new bedroom set. Was it king-sized (I just blogged tongue-in-cheek about my “need” fir a king-sized bed last week, in case you missed the reference). 😉

    • We’ve had a king-sized Select Comfort bed for ten years but with no headboard or foot board. So we bought those with matching night stands and dressers. Give me a mini fridge and microwave and I could live in my bedroom now. 🙂


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