Rising Tide Blog

Do you really need that new car?

Posted by Matt Hale

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So you’ve got your eye on a new car? Good one – as long as you’re smart about it.

Over 96,000 cars were bought and sold in March this year alone, so there’s no doubt the car industry is humming along nicely, just make sure you’ve joined all the dots before you take the financial plunge. Here are a few things to check off before you hand over the cash.

1. Beat the d-word.

Depreciation is one of the key factors that make investing in a car a decision worth thinking about.

Here’s a timeline to think about: the moment you purchase the vehicle, it automatically loses 11% of its value. One year later, it’s lost 25% of the original price. Then, three years down the track you’re looking at a loss of 46%. So factor this into your plans, and work out how long you plan on owning the vehicle.

Thinking about having kids? Is the car big enough? Will you stay in the same industry and have the same needs from a car for the next five years, or will you need say, a ute down the track? Are you going to stay in the city? If so, will your car help or hinder you?

Another factor that plays into the depreciation value is whether or not you modify the car; technology that’s current when you buy it won’t necessarily be a value add in a few years time. Considering it’s an asset that naturally depreciates the longer you have it, the less money you put into it the better off you’ll be down the track.

But, cars will always be worth something if they run well, so make sure you’re servicing it at the right time so your new asset is in the best possible shape it can be.

2. Wait for a deal or a good second hand option

The nice, new, shiny model will always be the preference, but ask yourself – a week into owning a new car, will it still have that new car smell? Probably not. So should you be considering a second hand car that will save you some cash and give you the same practical result? Possibly.

A one or two year old car will still be under warranty, and depending on the manufacturer you might even get up to five years of servicing for minimal cost. Not to mention, a car that’s under warranty will have a better resale value for the length of that warranty time if you needed to resell.

Otherwise, end of financial or calendar year deals will ensure you’re getting a reduced price, plus it’s likely you’ll get some extras thrown in for minimal cost. Drive away deals will see you saving on dealer delivery and registration too.

3. Consider the extra expenses.

New cars cost more to insure, that’s a given. So it’s worth doing your research and comparing what your preferred insurer will offer on a new car vs. a secondhand model.

You’ll also need to consider that newer cars will have newer and more expensive parts, so your excess will likely be higher too, and depending on your age, gender and location you could be paying a lot more than you were on car insurance with a new model.

Aside from insurance, take into consideration the external factors that you’ll need to pay for like petrol (vs. gas) and yearly registration. In general, registration and insurance will add around $2000 per year to your running costs, and petrol could be anywhere from $20 – $50 a week – more too if you have a car that requires premium fuel.

6. Think twice about PT.

Amazingly, seven out of ten Australians live in a major capital city, with ample access to trains, trams and busses. According to the ABS, we spend 35 x more on our cars than we do on public transport – so if you can walk or train to work it might save you in the long run – not to mention the obvious environmental benefits.

There’s a fair bit to think about if you’re considering buying a new car, so we’re hoping the above points will get you closer to making an informed and smart financial decision.