New Cars vs Used Cars: Which to Invest In According to Mr. Dave

November 27, 2018

 

Dear Dave,

I’ll be graduating from college with no debt in a couple of weeks, and I have a good job waiting for me in January.

During the last few years, I’ve managed to save almost $25,000 from my part-time jobs while in school.

My car is pretty beaten up and old, so I’ve been shopping at a couple of car dealerships recently.

Every time I talk to a salesperson, they tell me I should finance something new instead of paying cash for a used car.

What should I do?

Ethan

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Dear Ethan,

I hope you’ll keep one very important thing in mind.

This is your purchase, not theirs.

The only reason they want you to finance something is so they’ll make a lot more money off the deal.

Forget what they want.

You need to do what’s best for you.

You’ve been a hard-working, smart guy over the last few years.

The fact that you’ve been able to save nearly $25,000 is proof of that.

I don’t think you want to throw a big chunk of your savings—or your new income—into something that’s going to go down in value like a rock.

New cars lose about 60 percent of their value during the first four years of ownership.

That means a $28,000 car would be worth around $11,000 after that period.

That’s not a smart investment.

If I were you, I’d shop around and pay cash for a nice, slightly used $10,000 car.

You can get a great automobile for that kind of money, plus you’ll still have the majority of your savings.

Congratulations, young man.

You’ve done a great job!

—Dave