How New Cars Can Keep You Poor

Quick Recap

Buying a used car is usually a better deal than buying new, because new cars depreciate the minute you drive off the lot.
Car insurance prices are partially based on the cash value of your vehicle, meaning brand-new off-the-lot cars usually cost more to insure than used cars do.
New cars typically have higher upfront costs and higher monthly payments than used cars.
Hawthorne Auto Square offers high-quality used vehicles and buy-here-pay-here financing options for Californians.

The Hidden Costs of Buying a New Car

Many people desire a brand-new car. It may provide a sense of dignity and prestige. Whatever a new car buyer gets out of their decision, there’s no denying the hit it takes on their wallet, from the initial depreciation to hidden costs like insurance prices, taxes, and unnecessary dealership add-ons.

What’s the biggest reason why you shouldn’t buy a new car? Because you can buy from a used car dealership in Los Angeles, spend much less upfront and over time, and have a vehicle that meets your wants and needs. So, is buying a new car a bad idea? Let’s explore the facts.

Why Do New Cars Lose Value So Quickly?

Any new car loses a significant amount of value the moment it’s driven off the lot. According to Edmunds, creator of the Edmunds Trade-In Value tool, new cars generally lose 23.5% of their manufacturer’s suggested retail price (MSRP) in the first year. In 5 years, they may lose around 60% of their MSRP. This means an average car will retain just 40% of its original value, and that’s if it’s well-maintained. And expensive cars tend to depreciate even more!

Depreciation can mean that the same car you bought is worth less than what you initially invested in it, negatively affecting its resale value.

New Car Insurance vs. Used Car Insurance — What’s the Difference?

States, dealerships, and financial institutions require car owners to insure their vehicles. When comparing a new car vs. a used car’s insurance cost, you’ll find that it costs more to insure a new car because:

It has a higher value.
There’s a higher risk of theft.
New car parts are more expensive.

Your insurance premium will reflect all of these factors.

Do Dealership Add-Ons Really Drain Your Wallet?

A major step in buying a new car is the sales process. Salespeople are often pressured to meet specific targets. They may attempt to influence you into purchasing dealership add-ons, such as leather seats, fancy rims, satellite radio, high-quality sound systems, and other unnecessary items that increase the upfront cost.

Why Choosing a Used Car in Los Angeles Makes Sense

The majority of Los Angeles County residents count on their personal vehicle to get around.

After exploring the various new car vs. used car costs and understanding the average new car depreciation in its first year and beyond, it’s clear that choosing a used car in LA just makes sense, especially if you’re trying to save money. A used car:

Is a stable investment.
Will be more likely to fit your budget.
Still comes with all the conveniences and tech of a new vehicle.

How Buying Used Helps You Build Wealth Instead of Losing It

By buying a used car, you’ll save money and enjoy lower monthly payments. Let’s look at how the hidden costs of buying a new car can keep you from climbing the financial ladder, and how car payments affect your finances:

Higher upfront costs

In 2022, the average new car price topped $47,000, according to Consumer Reports. Car prices are rising dramatically due to a variety of factors. The average price of a used car is now over $33,000, but that doesn’t mean you can’t find one under $20,000 to fit your budget.

The down payment is one of the biggest hurdles in buying a new car. Think about when you need to put 20% down. For a $40,000 car, that means forking over $8,000 in cash. Then you may still use over 10% of your gross monthly income on car-related costs and expenses!

Higher monthly payments

A higher purchasing price means higher monthly payments. Lenders are often pretty tight on loan terms. While a longer-term loan may reduce your monthly payments, it can mean paying more in interest and owing more than the car is worth. A shorter-term loan means paying more per month, but a longer loan can mean you’re still paying off the vehicle when repair costs become an issue, affecting your finances long-term.

Service Areas in Los Angeles County

We have dealerships in the following areas:

Inglewood
Hollywood
Downtown LA
Santa Monica
Beverly Hills
Long Beach
Cerritos
Bellflower
Palmdale
Pasadena
Glendale
Burbank
Torrance
Gardena
Riverside
Downey
Moreno Valley
Redondo Beach
San Bernardino
Manhattan Beach
Compton
South Los Angeles
South Gate
Lynwood
Watts
Lancaster

Visit the location closest to you, or browse our online inventory to find your next vehicle. Our sales team is available 7 days a week to assist you.

Keep More of Your Money with a Trusted Local Dealership

We are one of the largest used car dealerships in Los Angeles. There are hundreds of makes and models to choose from on our lot. Our high-quality, low-mileage vehicles are available at affordable prices. As a buy-here, pay-here dealership, we offer financing options through a variety of programs designed to meet your needs.

Don’t strain your finances to the brink by purchasing a new car. To speak with our knowledgeable staff, call 855-971-1707 or schedule an appointment today.

Frequently Asked Questions

Is buying a new car really a bad idea for most people?

Yes, it’s often a poor financial decision to buy a new car. The immediate depreciation causes an instant decline in value, especially in the first five years, when most used cars will lose over half of their initial value.

Why do new cars lose value so quickly after purchase?

New cars lose value once they leave the lot because many buyers are unwilling to pay near-new prices for a technically “used” car. Vehicle manufacturers continue to release new models every year, which also decreases the market value of pre-owned cars, even if they’re in excellent condition.

What financial mistakes do people make when buying a new car?

Some of the most common financial mistakes people make when buying a new car include overspending beyond what they can afford, focusing on the monthly payments rather than the total price of the car, not considering whether the vehicle meets their needs, waiving the test drive, and buying unnecessary add-ons like rustproofing or fabric protection.

Is it smarter to buy a used car instead of a new car?

Yes, it’s smarter to buy a used car rather than a new car. There is a wide variety of used vehicles to choose from, allowing you to find the perfect vehicle to meet your needs at a lower upfront cost. Buying a used car also means you can avoid rapid depreciation, and your monthly insurance costs will likely be lower.