Sunday, February 17, 2013

Why the Majority of Trinbagonians Should not Buy A Brand New Car

 Unless you're very wealthy with money to burn you should not be purchasing a new car especially when taking out a loan. The costs are just way too high for the average Trinbagonian to absorb. The new car smell and the big "sawatie" feeling just isn’t worth it.

Here's why:


The High Loan Interest Expense. Riding a wave of emotion and persuasive arguments buyers often neglect to see what they're signing up for in terms of the tremendous financial expense they will now by saddled with. Here's an example:

New Car Cost : $200,000
Down payment: $20,000
Loan Amount: $180,000
Annual Interest Rate: 12% (Could be much more)
Length of the loan: 5 Years
Number of Monthly Payments: 60
Loan Interest paid after 5 Years: $60,240
Total Payments to Bank: $240,240
Total Acquisition Cost: $260,240

 In other words a car that cost $200,000 winds up costing you: $260,240 after 5 years when you finance it.  

Here's where you lose even more:

Higher Insurance Cost Insurance cost is much higher on new cars and especially so when cars are financed. Once the car purchase is financed the bank makes it mandatory for the purchaser to take out a full comprehensive insurance policy to safeguard the financier's collateral. This means that your yearly insurance cost is much higher than if a cheaper second hand car was bought. Had you bought a cheaper second hand car not only would your insurance cost be lower but you could opt for third part, fire and theft insurance which is substantially cheaper than full comprehensive coverage.  

Higher Maintenance by Local Car Dealers New cars purchased in Trinidad and Tobago are required to have their vehicles serviced by the new car dealer in the early life of the car. These services are required to maintain the warranty on the car purchased. Even after the mandatory services to maintain the car's warranty have passed many owners often feel inclined to continue to service their cars at the local car dealers at very exorbitant costs since they worry that having the car serviced elsewhere could have negative consequences. Its even worse if the car gets into an accident and needs to be repaired.  

Significant Loss in Value Once New Cars Are Driven Out the Showroom

Reports indicate that as cars drive out the showroom they immediately decline 25 - 30% in value since the car can no longer be considered a "new car" or unused. This is a terrible personal business decision and should be avoided by the average car buyer who cannot afford such a hit against their personal finances. Moreover new cars lose 70% of their value in the first four years. When you buy used, the original owner has already taken that major depreciation hit. You, on the other hand, can get a great four-year-old car for a good price significantly lower than the cost of a brand new car. Accidental nicks and scratches in the early life of the car also have the effect of eroding the car's value much faster.


   

Solution: Save Up and Buy A Used Car Of course buying your car without taking out a loan will be a challenge, but its certainly not impossible. With a strong work ethic and diligence in saving and minimizing spending can help get you there. Spend a lot of time looking and researching potential cars. Look through the newspaper classifieds, go online and search for used cars, and you’ll find plenty of good cars for $60,000 or less—Toyota Corollas, Honda Accords, Civics, Mitsubishi Lancers, Nissan Sunny's.  

Patience is a virtue. Your Not Doomed to drive a relatively older car forever. Say that you are thinking about financing a new car with payments of $2500 a month. Your current car is worth around $40,000. If you take that $2500 and pay yourself, instead of the bank, you’ll have $25,000 in just 10 short months. Sell your old car and you'll have a total of $65,000 to use towards the purchase of a better car, while continuing to save $2500 a month in another 10 months you'll have another $25,000 to put towards an upgraded car purchase. Repeat this process again, and you could have a $100,000 car just 30 months after you started saving. This makes much better financial sense than buying a new car and incurring significant loss in value.  

But I Need A Reliable Car... Older cars have high maintenance cost and headache When you buy a new car you are paying a high premium to have a warranty / or a feeling of reliability, with all that money you pay the bank and the car dealerships you could comprehensively maintain a gently used car, more than you would ever need.

Instead use that money that would be wasted buying a new car and budget it toward car maintenance and toward your next cash purchase of a car. With a thorough car search and proper counsel before making a used car purchase you'll have an excellent chance of finding an affordable roadworthy vehicle. Though this may not be what you want to hear; deferring instant gratification has tremendous benefits. Don't be impulsive with your financial decisions.

Questions, comments? Contact us.

42 comments:

  1. This is a very note worthy article for someone in the market for a car, especially a first time owner. The urge to own a new car is very strong as the feeling of problem free driving for the first few years weighs a lot if you ever experienced real car worries. The analysis given however makes a lot of sense and should be seriously considered, before a decision is made.

    ReplyDelete
  2. It is good to have the new car because it has several advantage like -
    1. Life longevity.
    2. Save money and time as old one may or may not run properly while journey.
    3. boost confidence as some new things arrive in life.

    No doubt this is informative post shared, but it is necessary to have new car instead of old one as if problem while getting to buy new one, there are financial service like faraday car loans that are authorized to provide the required financial help.

    ReplyDelete
  3. 12%? you pulled that figure out of your ass or what?

    ReplyDelete
  4. This article was unrealistic. As someone who has purchased used as a first car for the same reasons given, I have had many repairs which amounted to up to 16000 in one shot. Any used car that looks good could have numerous faults that you just can't see. Granted I took a loan, in the end, all the money I spent in acquiring and repairing, I might as well have bought new. The failures coat 16000 to repair would not have happened in a new car or would have been covered by warranty. When you buy used, you take on the previous owners problems.

    ReplyDelete
    Replies
    1. These things happen..... but clearly you didn't do sufficient due diligence.

      Delete
  5. This article does not take into account the impact the used car industry has on crime. The means of access to replacement body parts by used car dealers. Also, ro-ro dealers give a very limited warranty. Although there are some good deals on second hand used vehicles obtaining one is achieved through a mixture of diligent research, investigation of the vehicle under consideration and luck.

    ReplyDelete
    Replies
    1. You should direct your ire at your government that places import restrictions on these items leading to shortages and black markets.

      Delete
  6. My concern is with the 8% interest with investment; where can I get such high interest rates?

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  8. Someone challenged the 12% interest rate. Anyone has an alternate number? This was well written except for one type ("Your") and timely for me. I'll be going with a gently used car instead of a new one.

    ReplyDelete
  9. A headlight on a 2015 Kia Cerato = $11,000.00

    ReplyDelete
  10. For me as a first time car owner I will purchase a roro vehicle for 2 reasons 1. I am a first time driver on the nation road 2. If I do have an accident I can fix my car which will cost me but not the amount to fix a brand new car I want a feel of the road first

    ReplyDelete
    Replies
    1. I agree with u. I also am a first timer and looking for a second hand car and with same reasons as u

      Delete
  11. Written by someone one stuck in the old days who still wanna drive a smelly 120y Datsun.....not everyone likes old crap and yes you pay for better nicer cleaner its called upgrading bro.

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