Receive the latest Trees Full of Money articles FREE in your E-Mail or via RSS.
There are many legitimate reasons to buy a new car. However, over the years, I have heard a variety of dumb reasons people have cited as being their sole motivator in buying a vehicle they were otherwise perfectly happy without. The following is a summary of the most common myths:
My Old Car is Getting too Costly to Repair
WRONG! With very few exceptions, the price to maintain an older vehicle will almost always be cheaper than buying a newer one. If you don’t believe me, just look at all of the vehicles on the road that are older than yours, then ask yourself this question: “If it is cheaper to drive a new car, than why aren’t all of those owners trading in their older cars too?” Answer: Because it is not cheaper! When you go to trade in your older car its not going to sit idle, someone else is going to buy it, and chances are it will be on the road for a few more years.
It’s a Tax Write-Off
WRONG! If your vehicle purchase is eligible to be deducted from your tax liability, by all means deduct it. However, justifying a purchase solely because of this tax incentive is ridiculous, and here’s why:
Let’s say a person (who is otherwise content with her current vehicle), believes the myth that she needs to buy a new vehicle to offset her tax liability. After she purchases or leases the vehicle, she is then allowed to deduct a certain amount from her taxes. Let’s say she was in the 25% tax bracket and the first year she was allowed to deduct a third of the vehicles value, or $10,000, from her gross income. A quick calculation shows that she would save $2,500 in taxes yet she spent $10,000 for this privilege for a vehicle she otherwise didn’t need. The math just doesn’t add up!
There are NO situations where it makes sense to buy ANYTHING for the exclusive reason of a tax write off. Write-Offs can be incredible incentives, but should never be looked at as a valid reason by themselves.
I Got a Great Deal!
Doubtful! You may think that you got a great deal, but the reality is, if you’ve done any price comparison at all on a new or used vehicle, you can get that same great deal any other time of the year. Take your “irresistible deal” and email it to all the dealers within a 2 hour drive of your house, one of them will come back and match it. Buy a new vehicle when you’re ready to, you can always find a great deal if you do a little research.
I’ve Got to Trade My Car in Now While It’s Still Worth Something!
WRONG! The problem with this argument is that it is actually the reason NOT to buy a new car, here’s why: Most cars depreciate in value, so if you trade in your older, less valuable car, on a more expensive vehicle you now have that much more “value” to depreciate. Say your current car is worth $5,000 and you want to trade it in on a $15,000 car. In another year your $5,000 might be worth $4,000, but the $15,000 car will probably only be worth $12,000. In this case both cars lost 20% of their value, but the more expensive the car, the more depreciation will cost you.
Related Articles:
How to Clean Up Your Credit Reports
Dave Ramsey’s 7 Financial Baby Steps
How to Use a Goodwill Letter to Remove Late Payments From Your Credit Report
Free Excel Checkbook Registry Spreadsheet
Identity Theft Prevention Guide
{ 1 comment… read it below or add one }
I am sooo glad we didn’t fall into the new-car-buying trap. I agree, there are so many bad reasons to buy a new car! I would so much rather buy one that’s a few years old and has had the large chunk of depreciation taken care of by someone else.