Many auto companies offer five-year loans with interest-free loans to encourage consumers to buy new cars. But is buying a new car with an interest-free loan a better choice than buying a used car with an interest-bearing loan? Many people may find that a better option is interest free because you do not have to pay interest to buy a car. However, this does not take into account other factors such as depreciation of the car value.
How much will you lose when you buy a new car?
However, it is important to understand that a car is a depreciating asset. Many people consider cars an investment because of the high purchase price, but a true investment should bring you a rate of return for the money you spend, and the car will not. Generally speaking, a car will lose anywhere from $ 1600.00 to $ 2500.00 dollars in the first year of ownership. Most cars will depreciate between $ 6,500 to $ 10,000 in the first five years of a car’s life. If you are considering building a net worth or reducing your debt, it does not make sense to spend a lot on depreciable assets.
How much will I pay for an interest in a used car?
If you understand that a car will decrease in value over time, the next question is to look at how much interest you will be charged over the life of your loan to see if you will emerge by buying a used car at a lower purchase price.
With a purchase price of $ 12,000.00 and an interest rate of six percent, you will end up paying interest of about $ 1,160 over the life of a three-year loan. You may be able to find an even better interest rate by purchasing a loan.
It is also important to understand that car value falls much faster in the first three years of a car’s life and begins to slow down to five years.
So even though the car will continue to depreciate in value, it will do much less. If you are looking for the best value, you really need to consider a used car about five years old. Be sure to do your research to make sure you are buying a car with a good consumer report and that it has a good history with a few necessary repairs.
If you look at the average value of buying an old three-year or five-year car, you save money by comparing the interest paid ($ 1160.00 on a three-year loan) to the average first-year depreciation expense ($ 1600.00- $ 2500.00), which does not take into account the additional depreciation expense in the next two or three years. If you are just looking for an option where you will lose the least amount of money, then it should make your decision.
Is It Better To Buy A Used Car With A Loan Or A New Car With An Interest Free Loan?
Although buying a new car with an interest free loan may seem like a good idea on the surface, you will still lose more money than if you were to buy a used car with a loan that has interest. The loss will be even greater if you pay your old car loan into a new one. If you can buy a car by car, you will lose even more money compared to buying a new car.
In addition, many used cars come with warranties and are still very reliable.
It can be a challenge to buy a new car, especially if it is your first car or if you have had a lot of repairs for your old car. Just remember with time, it is still cheaper to buy a used car rather than a new car, even with the cost of car repairs. You may want to set up a thin stock to cover car repairs. You can also start saving so you can buy your next car with cash instead of worrying about finding a loan.