When it comes to car buying, you’ve got to take the good news when you can. According to the experts at Kelley Blue Book, the average transaction price (ATP) for new cars dropped $14 to $48,275 from March to April and it’s the second time in almost two years that average transactions dipped below the manufacturer’s suggested retail price (MSRP).
Whether these numbers represent optimistic trends or minor aberrations, new car prices are still about 27% higher than they were when the pandemic hit, prompting financial gurus like Dave Ramsey to warn customers about the pitfalls of buying new.
According to the bestselling author and radio personality, those looking to buy a car should aim their sights lower, older and cheaper.
“We’re not going to beat around the bush: The very best way to buy a car is to save up and buy a reliable, slightly used car (with cash),” claims Ramsey’s site, Ramsey Solutions. “You’re always going to be better off buying used and paying up front instead of going for the shiny new model that some overcaffeinated car salesman is trying to get you to borrow money for.”
For money experts like Ramsey and Suze Orman, there’s no rationalization for spending an enormous amount of money on something that depreciates so quickly. According to Carfax, cars lose 20% of their value in the first year of ownership and retain just 40% of their original value after five years.
“Your goal should be to buy the least expensive car. Period,” said Orman. “That should steer you to a used car rather than a new car.”
Tweeting in March, Ramsey stated, “Most millionaires don’t drive flashy cars. When people don’t waste money to LOOK wealthy, they have money to actually BECOME wealthy.”
Purchasing a nearly new model after the vehicle’s initial steep depreciation can save you thousands, which is money that can be put to better uses than a car loan or dealership payments.
“The choice between a new or used vehicle (and how you pay for it) could be the difference between riding the highway to wealth and financial independence or spinning your wheels in a rut of debt and endless payments,” Ramsey Solutions added.
When you’re looking to buy a car, Ramsey and his cohorts explicitly believe you should never spend more than half of your annual household income. In fact, Ramsey Solutions doesn’t “recommend buying a new car — ever — until your net worth is more than $1 million. If you’re a millionaire and you want to buy a new car that costs a very small percentage of your net worth, then go for it.”
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