Are new cars worth the depreciation hit?

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Trying to decide between buying new car and buying used can be difficult. I bought my first — and probably last — new car a little over two and a half years ago. I paid around $22,000 for my 2008 Mazdaspeed 3 in the fall of 2007. At the time I was living in a neighborhood where my car was stolen twice in less than three years, so I threw in a LoJack security system. Because the new car has a turbo, and I’ve often been warned about the expense of replacing them, I bought an extended warranty as well. My grand total after taxes, tag, title, gap insurance and everything else was $27,870.

Now comes the painful part. If I sold my car today to a private party today, Kelley Blue Book tells me I could expect to get, at the most, $17,705 for it. That’s over $10,000 total I’ve lost on my car already, and trust me, that’s a painful amount. For you math lovers out there, that averages out to about $300 per month that I’ve essentially traded for the privilege of driving a clean, fast new car with all the latest safety features and no repair hassles to worry about.

As I’ve mentioned before on this blog, we’re now a one-car family, which makes vehicle reliability VERY important to us, but even considering the trouble-free life of the car so far and the fun I’ve had driving it, I don’t know if I’d buy a new car again. The numbers are just stunning when you think about them. Kelley Blue Book says that the average new car loses 65 percent of its value to depreciation after four years. I mean, imagine if a Realtor was showing you a house in Florida in 2006 and because he was both clairvoyant and unusually honest, he told you that without a shadow of a doubt, the house you were looking at would lose 65 percent of its value in four years. You’d get the heck out of there and go rent, right? And yet many people make this same decision with cars every few years.

The alternative tactic I’ll probably take next time is buying a used car of a reliable make and model. There are just very few downsides to buying your transportation this way. For one thing, our resident rate guru Greg McBride says used car loans aren’t any harder to get than your average new car loan. Sure, you’ll pay a few extra points of interest to cover the risk that your used car will break down and become worthless and unable to secure the loan, but he says the amount you’ll pay in extra interest is miniscule compared to the savings you’ll get from some other schmuck taking the depreciation hit for you. You won’t get the latest sheet metal or technology, but are those kind of creature comforts worth hundreds of dollars a month in burned up wealth? It depends on your situation, I guess, but for me, the answer is probably no.

Are you a new-car buyer or a used-car buyer?