4 Reasons a New Car Is the Worst Investment You Can Make, According to Rachel Cruze
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Angela Mae
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Ashleigh Ray
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If you’re on the fence about buying either a used or a new car, you might want to go with the former. According to Rachel Cruze, a certified financial coach and personal finance expert, a used car is pretty much always the better investment.
Here’s a closer look at Cruze’s reasons to skip the new model and go with a used car instead.
New Cars Cost Much More
In a short posted on her YouTube channel, Cruze pointed out that you can still buy a nice, reliable used car that will get you from point A to point B without breaking the bank.
To support this, she mentioned that you can get used cars for under $8,000 that are well worth the value. According to Kelley Blue Book, a used car costs, on average, $25,415. The average new car costs $48,401. That’s a substantial difference, especially if you’re trying to be budget conscious.
Keep in mind that new cars are also generally more expensive to insure. If you take out a loan to finance your purchase, you’re also bound to spend more on interest since the loan amount will be higher.
Depending on the loan term, you could easily spend hundreds or even thousands of dollars more on a new vehicle vs. a used one just on interest alone.
Your Worth and Identity Are Not Tied to Your Car’s Value
“Your identity and worth are not wrapped up in the car you drive,” said Cruze in an Instagram reel.
You could buy a five-year-old Honda Civic, for example. And even though it might not be the fanciest vehicle on the road, that shouldn’t be the most important thing.
What matters is that you have something reliable that won’t hurt you financially.
New Cars Depreciate More Quickly
Cruze also explained how depreciation makes new cars a bad investment. Depreciation is essentially when your vehicle starts to lose value, and with newer cars, the rate of depreciation is much faster than with older ones.
According to Ramsey Solutions, a new car depreciates by about 9% the moment you drive it off the lot. For a $48,401 car, that’s a $4,356 loss in value. Many outlets also report that a new car loses 20% of its value within the first year.
New Cars Also Depreciate More Over Time
Depreciation doesn’t happen only once. In general, your assets — including your vehicles — can continue to lose value over time.
In her reel, Cruze pointed out that a typical new vehicle can lose around 60% of its original value in the first five years of ownership. If your car originally cost $48,401 and it depreciates at that rate, it would be worth only about $19,360 after five years.
Cruze suggested letting someone else take the hit instead and going with a used car that won’t lose value nearly as quickly. This means looking for a vehicle that’s about five years old and in good condition.
That way, you’ll still have a good vehicle but won’t have to lose as much money on the purchase.
Tips For Choosing a Used Car
When purchasing a used car, there are a couple of things you should look for:
- Mileage: A used vehicle will have some miles on it, but it shouldn’t be too high or low. If it has fewer than 5,000 miles a year or higher than 20,000 miles a year, ask why. According to Consumer Reports, a high-mileage vehicle could have more wear and tear. A lower mileage might seem nice, but it doesn’t guarantee proper or gentle care.
- Accident report: Get a vehicle report to see if it’s had a history of accidents or notable issues. Find out what it’s maintenance and repairs have been like, and if there have been any recalls.
Asking these types of questions and getting this information can help you make the smartest decision for your financial situation.
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