Is it worth buying a new car? The pros and cons

When considering whether to buy a new car, the decision can be a significant financial commitment. The appeal of a new car with its fresh smell and cutting-edge technology may be tempting, but is the investment truly worth it?

In this article, we will explore the advantages and disadvantages of purchasing a new car to assist you in making an educated choice. From the impact of depreciation on the vehicle’s value to the ongoing maintenance costs, we will analyse the key factors you should weigh before deciding to buy a new car.

Whether you are looking to upgrade, downsize, or purchase your first vehicle, it is crucial to determine the right time to buy a new car versus opting for a used one. While the idea of owning a brand new car may be alluring, it is essential to have a clear understanding of your budget and actual cost involved, not just now but also in the long term.

Is it worth buying a new car?

Deciding whether to buy a new car can be a tough decision, especially when considering the financial aspect. While purchasing a new car may not be the most financially viable option due to depreciation in value, it can potentially save you money on other costs in the long run.

What are the benefits of buying a new car?

Below are some of the benefits of buying a new car:

Full warranty and capped-price servicing

One major advantage of purchasing a new car is the peace of mind that comes with having a full warranty and access to capped-priced servicing. With a new car, you can rest assured that, in the rare event of any faults or issues arising post-purchase, you will be covered under warranty and have the cost of servicing capped.

This means that any potential unexpected expenses related to your new car are likely to be minimal. Additionally, the satisfaction of driving a brand new car off the showroom floor and enjoying that fresh new car smell is a feeling like no other.

You know what to expect

When considering whether to buy a new car or a used car, one major advantage of opting for a new car is the certainty it can provide. With a new car, you know exactly what to expect since no one else has owned it before. This means that there are no hidden issues lurking under the hood that could surprise you down the road. Additionally, a new car is less likely to break down compared to a used car, resulting in lower ongoing costs as parts won’t need to be replaced as frequently.

If you choose to buy a used car, there is a risk that the previous owner may not have properly maintained the vehicle or disclosed all necessary information about its service history. While buying a used car may initially save you money on the vehicle price, potential future costs could outweigh these financial savings. Therefore, the predictability and reliability of a new car are significant advantages to consider when making a decision between purchasing new or used.

Ease of purchase and choice

Another advantage of buying a new car is the ease of purchase and the ability to choose exactly what you want. When you buy a new car from a dealership, you don’t have to worry about getting mechanical inspections, title checks, or searching for the perfect car. You can simply pick the car you desire, selecting the colour, features, and any additional extras to customise it to your liking.

Additionally, new cars come equipped with the latest safety features and are more fuel-efficient, resulting in lower running costs. This means that not only do you have the convenience of a hassle-free purchase process, but you also get to enjoy a car tailored to your preferences and with advanced technology for a better driving experience.

No need to pay a pre-purchase inspection

When considering purchasing a new car, you won’t need to pay for a pre-purchase inspection. This can save you money on upfront costs and make the buying process more convenient. However, it is still important to thoroughly inspect the vehicle yourself or have a trusted mechanic take a look to ensure that you are making a sound investment.

Electric cars

Buying a brand-new vehicle comes with many benefits, especially with the rise of electric vehicles. These types of cars are environmentally friendly and help reduce pollution, making them a great choice for eco-conscious consumers.

Owning an electric vehicle can save you money in the long run, as you won’t need to spend as much on fuel, allowing you to enjoy both long-term savings and a cleaner environment.

What are the drawbacks of buying a new car?

Below are some of the drawbacks of buying a new car:

More expensive to insure and maintain

When considering purchasing a new car, one of the drawbacks to keep in mind is that it can be more expensive to insure and maintain compared to a used car. New cars typically come with higher insurance premiums from insurance companies due to their higher value, as well as the cost of minor and major repairs or replacing parts that can drive up maintenance costs.

Ultimately, the amount you pay for comprehensive insurance each year will depend on the coverage you choose and your driving history.

Depreciation in value

One major drawback of buying a new car is depreciation. New cars tend to lose their value quickly, with a significant decrease in value within the first year of purchase. As soon as a new car leaves the dealership, it can lose up to 10% of its value. Over the following five years, a car can lose up to 60% of its original value.

In comparison, used cars, especially those that are at least five years old, have already experienced the steepest depreciation costs, making them a more stable investment. Depreciation is a key factor that many car buyers consider when deciding between buying new or used.

Reliance on financing

One major drawback of buying a new car is the heavy reliance on financing. The average new car loan in Australia is just over $37,000, with a monthly payment of approximately $793. With an average interest rate ranging between 5% and 17% and an average loan term of five years.

When financing a new car, the value of the car immediately decreases once you drive it off the dealership. Over time, the car continues to depreciate in value. For example, after five years, the car may be worth less than half of its original retail price. This results in paying more for the car through monthly payments than what it is actually worth. Upon finishing the loan term, you may find yourself with a car worth significantly less than the initial cost.

What factors should be considered when deciding to buy a car?

It’s important to think about your specific needs and financial situation rather than getting caught up in the debate between new and used cars.

Ask yourself questions like what type of vehicle suits your lifestyle and how much you can afford to spend on it. Research different car options and calculate the true costs to determine which car aligns best with your budget. Additionally, keep in mind that the appeal of a new car can fade quickly, as it becomes a used car as soon as you drive it off the lot.

What are the running costs of owning a car?

Fuel is one of the biggest expenses for Aussies who own a car. Here’s a break down of Canstar’s latest average car running costs:

• Fuel, average of $4,940 a year
• Servicing, combined average cost of $319 
• Tyres, average of $344
• Insurance, average of $1,780 a year plus any roadside assistance 

What are some alternatives to buying a new car?

Below are some of the alternatives to buying a new car:

Buy a 12–18 month old car

If you’re willing to look beyond the allure of purchasing a brand new car, there are plenty of alternatives that can offer you almost everything a new car can at a significantly lower cost. Well-maintained and well-serviced used cars can be just as reliable as new ones. For instance, a car that is just over a year old may have already depreciated by around 40% but could still have a few years remaining on its new car factory warranty, as many manufacturers now offer manufacturer warranties up to five years.

A used car that is 12–18 months old is often considered the ideal ‘sweet spot’ for purchasing a used vehicle. You can still enjoy all the safety features and technological advancements that come with new cars, but at a fraction of the vehicle price. Additionally, sellers of used cars are usually open to negotiations on the second-hand price, providing you with the opportunity to get a great deal on a reliable vehicle.

Buy a pre-owned car

Consider purchasing a pre-owned car instead. This is a great option for those on tighter budgets who want to avoid being tied down to a long-term car loan.

While second-hand cars may come with a higher risk of breaking down and potentially higher maintenance costs, they can still be a cost-effective choice for those looking to save money on a vehicle purchase.

Bicycle

If buying a new car just isn’t in the budget, consider using a bicycle. While it may not be suitable for larger families, a bike can be a practical option for commuting and getting around town without the true costs of purchasing and maintaining a car.

Additionally, riding a bicycle is eco-friendly and provides a great opportunity for exercise, benefiting both your health and the environment.

Public transport

If owning a car is not an option for you, public transportation is a great alternative that can significantly lower your travel expenses and still provide you with reliable transportation. While it may not always be the most convenient option, using public transport can help you reach your destination without the hassle of driving and navigating traffic.

And just like a bicycle, opting for public transportation is also more environmentally friendly compared to using a car, as it reduces the amount of pollution emitted into the atmosphere.

Can MyBudget help me decide whether it’s worth buying a new car?

If you’re debating whether it’s worth buying a new car, MyBudget can help you make an informed financial decision. Our friendly team of Money Coaches can assist you in analysing your financial situation, exploring your options for a car or obtaining a car loan, and even finding ways to pay off your loan quicker.

We can also provide guidance on considering used car alternatives and creating a plan to save up to purchase a car outright. With MyBudget’s expertise and support, we can help you weigh the pros and cons of buying a new car and make the best decision for your current personal circumstances.

To get started, give us a call on 1300 300 922 to book your free budget appointment or enquire online.