For 38% of all Americans surveyed by GOBankingRates, 2024 is the year consumers plan to purchase a car. But before you rush to the car dealership to claim your tax refund, you might want to see what top money experts have to say about this big financial milestone.
There's nothing wrong with buying a car, but personal finance experts like Dave Ramsey, Suze Orman, David Buck, and Kevin O'Leary say consumers should never buy a new car. We are unanimously in agreement on this point.
Here are some of the biggest reasons why buying a new car can be detrimental to your overall financial health.
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New cars as depreciable assets
Most financial experts agree that depreciation is the main deciding factor in whether or not to buy a new car.
According to Dave Ramsey, new cars lose value at a much faster rate than used cars. His post on his website Ramsey Solutions takes a closer look at new car depreciation schedules. Ramsey gave the example of buying a new car for $35,000. Just one minute after the car leaves the dealer's lot, it has lost about 9% to 11% of its value, or about $3,500.
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If you need to take out a loan to finance the purchase, the value of your new car will depreciate even faster.
In an interview with CNBC, “Automatic Millionaire” author David Buck encouraged buyers to focus on the annual payments associated with a new car, rather than the monthly payments.
He gave the example of a buyer who spends $500 a month on a new car payment. This equates to a total of $6,000 per year, or approximately 2-3 months of income.
Bach recommends asking yourself if you can invest in a cheaper, slightly older used car rather than an expensive new car that depreciates in value every day.
Financing the purchase of a new car can lead to missed savings opportunities
Suze Orman urges people interested in buying a new car to consider opportunity costs.
In an article on his website, Orman recommended calculating the opportunity cost of economic moves. Essentially, this means that if he spends a dollar on something, such as buying a new car, he can no longer apply that dollar to other unresolved financial goals. Those who do not consider these costs may end up making decisions that jeopardize their financial health and other important aspects of their long-term security.
One example of opportunity cost Orman cited is buying a new car when your retirement savings aren't on track. Drivers who have to finance a new car purchase and spend years paying off their auto loan have significantly less cash at their disposal in their retirement accounts.
In the example of a driver spending $650 a month on a new car, the opportunity cost is more than $45,000 that could have been put toward retirement savings, Orman said.
Do this instead of buying a new car
Most Americans need a reliable car for everyday transportation. “Shark Tank” star Kevin O'Leary recommended that if you can't buy a new car, use a ride-sharing service like Uber or Lyft to get to your destination and save money.
For Americans who don't live in big cities and have limited access to ridesharing, the next best option is to buy a used car.
Do your due diligence to find a safe, reliable, and affordable used car in your price range. To avoid racking up debt, Ramsey recommends making this purchase in cash.
They may not be brand new, but used cars are reliable and can save you money over the long term, which you can use to support other financial goals. I think of “buying a car'' as a milestone. .
Survey Methodology: GOBankingRates surveyed 1,039 Americans ages 18 and older across the country from November 9th to November 13th, 2023, asking 10 different questions: (1) Where will your finances be at the end of 2023? (2) How much do you realistically want to save next year? (3) What investments are you considering for 2024? (if applicable) (4) Will you be in debt in 2024? (5) Will you have an emergency fund for 2024? And how many months will that fund cover? (6) Which best describes your biggest financial goals for 2024? (7) Are you planning for these major milestones in 2024? (Which one applies?) (select all); (8) What will cause you the most financial stress heading into the new year? (9) Are you planning a big job change in 2024? (10) What will cause you the most financial stress in 2024? What do you want? GOBankingRates conducted the poll using PureSpectrum's research platform.
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This article originally appeared on GOBankingRates.com: Dave Ramsey, Suze Orman, David Bach and other money experts: Never buy a new car
