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My WealthBuying a Car: Choosing the Right Financial Model

Posted Dec 2010

Buying the car is the nice thing. We love to have a car. But should we buy a new or a used car?


We all love cars. Everybody loves cars. The car is not only the meaning of transportation, but also a method of social promotion. Good car is enjoyment. A good car rise up the emotions. Men consider the good car to be the „magnet for women“. OK, enough about worshiping the institution of car and let’s come back to the reality.

In reality the car requires financial means. The financing model for buying the car should be justified and sustainable. The financial model being justified means that you should buy the car according to your personal financial situation. The financing being stabile means that if you lease the car, you need to be able to finance monthly installments, or...

Another important fact that is frequently undermined is the depreciation of the car value. If you decide to by a new car be prepared for rapid value depreciation:

Buying a Car: Choosing the right Financial Model

This example is taken from whatcar.com and represents the British rate of depreciation pattern. Maybe the rate of depreciation can be a slightly different in your country, but is very likely that the new car will lose between 50% and 60% in the first 4-5 years. This is a considerable part. Can you afford it? Even if you can afford that loss, does your income justify this loss?

It is very likely that the new car will lose between 50% and 60% in the first 4-5 years. This is a considerable part. Can you afford it? Even if you can afford that loss, does your income justify this loss?

If your income is sustainable, than probably you could take a new car. After all, the new car is the new car, it has the warranty, etc. But if you are financially stretched, than you should really think carefully. It is very hard to find the society in the world where 5% to 10% of population can consider themselves to be wealthy. Probably they can afford to buy the new car and to sustain the loss of half of the value of the new car within 5 years.

But are you considering yourself to be among those 10%, or you belong to the majority of the population? If you are the average citizen with regular job than your incomes can hardly sustain investment of the new car. Even if you can, than you are likely stretching your home budget to the limits with different monthly installments, including leasing installment for your car.

But can you afford to waste the 50% of the value of the new car within first 4-5 years, that is gone due to depreciation? And what after that period? Are you buying another new car? If your answer is yes, than probably you are wasting a value of a whole new car every 8-10 years. In 50 years you are likely to waste a value of 6-7 new cars. This is the fortune that you are giving away just to drive a new car. After all, the car is new only when you buy it. Once you are on the road it is the used car.

Again, if you can afford the new car without a blink of the eye and without noticing it – just do it. It is nice it have a new car and not having financial problems.

But if you are financially stretched, than consider buying the used car. If you buy a 4 year old car it will be for half price, and it is still quite new and good. This model has drawbacks too, but if you calculate thoroughly on the long run, the difference can bring you a small fortune.

 

 

 

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