Credit Management Notes
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Taking
on a New Car or Truck
How depreciation works?
A car loses about 15-20 percent of its
value each year. For example:
- Let's start with
a 1-year old used car worth
$15,000 that loses 15% of its value
each year.
- At 2 years old,
the car value is worth $12,750 (85%
of $15,000).
- At 3 years old,
the car value is worth $10,838 (85%
of $12,750).
You can lose thousands once your drive
your new car off the dealer's lot. Why?
Because the price you paid for the car
is the retail price (not counting the
taxes and licensing that are sunk costs).
If you drove that new car back to the
dealer, the most the dealer will pay is
the wholesale price (the same price he
would pay the manufacturer).
So your value drops instantly from the
retail price to the wholesale price once
you take possession. That drop could be
in the thousands depending on the type
of car and model.
You will be paying for the market
value of the car instead of dealer markup.
Some 1 year-old cars are great values
that can save you thousands
in financing costs. Get the facts:
http://www.carfax.com/
Kelley Blue
Book
Some places to look
for used cars:
see our "finding
a car section"
Should you lease
your car to reduce costs?
You are renting the car for a period of
time that you will return at the end of
your leasing agreement.
The advantage of leasing is that the monthly
payments are significantly lower than
financing.
The disadvantage of leasing is that you
will not be building any equity value.
You don't own anything.
The financial advantages
and disadvantages of leasing will vary
by person and circumstances.
- If you are a person
who must drive a new car every 1-3 years,
then leasing may be your best financial
option.
- If you are a person
who likes to replace your car every
5 years, then either leasing
or financing will be your best financial
option.
- If you a person
who likes to drive the same car for
7 or more years, then financing
would be your best option.
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