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.
How 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.”
So no one was more surprised than I when two weeks ago I signed a two-year lease on a car. I felt a bit dirty doing it, like I was committing the cardinal financial sin and selling my soul away. So I’m writing today to explain my actions given the terrible track record leases have for the consumer.