Are fancy cars worth the price
Buying a new or used car: what is recommended?
The car is a pretty expensive purchase. Therefore, many consider buying the car used and not new. But is that really recommended? Some believe that a used car can get quite expensive if repairs are carried out more frequently.
To answer this question, we first need to understand how much a new car costs.
How expensive is a new car really?
First to the facts: According to the ADAC car calculator, a standard Golf 8 with 1.0 TSI as a new car costs around 500 euros a month with operating costs, repairs, fixed costs and depreciation. These monthly costs arise over a holding period of 60 months and a mileage of 15,000 km per year. In the end, the car buyer paid a total of 30,000 euros for the Golf. For your information: The new car cost around EUR 20,000 from the dealer.
So the first realization is that you should add around a third of the new price to get the total cost of your car over the next 5 years. Of course, more powerfully motorized vehicles are even more expensive than this third, because insurance and fuel cost more. In addition, the loss in value is higher. But in the first step, this first guideline should be enough for you to estimate the total costs.
Many may be surprised by this extremely high amount of 500 euros per month. The 500 euros already include the loss in value if you sell your car again after these 5 years. Many underestimate this loss of value.
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A sale after five years is pretty bad business. In the first two years after first registration, the value of a new car is reduced considerably. After that, the price will slowly drop until the car is worth 65 percent less after 5 years. If you waited another 5 years, the price would only be reduced by another 25%. But for this calculation, we assume that you will not be deterred by this. You sell your Golf for EUR 7,000 after 5 years instead of EUR 5,980 after 10 years.
For the overall picture, add the opportunity costs
Suppose you don't pay the roughly 500 euros per month for the car and don't spend it on other consumer goods, but invest them wisely: Then you have to add the opportunity costs for the car. Now in detail:
- In the first case, you are a car fanatic and buy a new car like the Golf 8 every 5 years for the next 15 years and pay 500 euros a month for it.
- In the second case, you choose public transport, bikes or car sharing. The costs for this are a total of 100 euros per month. You invest the difference of 400 euros per month in a broadly diversified ETF on the world share index MSCI World and receive 107,000 euros before taxes after 15 years with an average return of 5%. Of course, the 5% is no guarantee, but in the past it has been shown that this return is realistic with a sufficiently long holding period of at least 15 years. So not only would you have saved 72,000 euros (400 euros per month), but you would also have made a profit of 35,000 euros. The profit is the opportunity cost.
So if you add the opportunity costs to the monthly costs, then the cost of a new Golf every 5 years is not the high 500 euros per month, but a whopping 594 euros.
The total monthly costs for a new car are therefore extremely high. Fewer and fewer normal wage earners in Germany can pay these amounts immediately. Therefore, many think about a lease or even a loan to buy a new car.
Leasing a car instead of buying it does not help you save
These alternatives are usually more expensive than the option of paying for the car all at once. Why?
- Leasing contracts are particularly attractive for companies as these offer a tax advantage and are also conducive to liquidity. For private individuals, leasing cars usually mean higher costs than a new car. Because with leasing contracts only the wear and tear of the car is paid every month. The car itself is not owned by the lessee. He or she can therefore not control the sale and use, including repairs, himself - these are stipulated in the contract.
- It is even more expensive to take out a loan for a car as a private individual. The interest rates are high compared to real estate loans and are not tax deductible. At the same time, the car loses a lot of its value over time. Taking out a loan for a consumer good like a car has an effect similar to burning money. Let's stay with the example of the Golf 8: Suppose you add 5,000 euros in equity and take out a loan of over 15,000 euros with 4% interest. Then the Golf will cost you a total of 21,692 euros instead of 20,000 euros. Beat the monthly costs including the opportunity costs with over 621 euros to be booked over the next 15 years, if you finance a new Golf 8 every 5 years at these conditions.
With these two variants you will therefore not save any money when buying a car.
A rule of thumb: What is the maximum cost of your car?
Now what is a good guideline for finding out what the maximum acquisition costs for your car can be? Here it is recommended to spend a maximum of 10% of your gross annual income. For example, if you earn 65,000 euros gross per year, a car at a purchase price of 6,500 euros would be appropriate. That would be roughly a used Golf that is 5 years old.
As a family, you can of course use the entire family income if you buy a car together. If you collectively earn around 100,000 euros, a car for a purchase price of 10,000 euros would be conceivable. If you do occasionally need two cars, you could rent a suitable car through a car sharing provider.
For obvious reasons, loan providers and the auto industry believe that up to 25% of the monthly net salary can be consumed for the total cost of a car. So with a net salary of 2,400 euros, you could afford a Golf 8. But what if the city apartment accounts for another 30% of the salary and 20% for food costs? Then only 600 euros per month remain for clothing, vacation, leisure time and further training. In this case, saving seems to be hopeless.
The 10% annual gross budget for a new car sounds sobering to some. If so, perhaps you could remind yourself that your car is probably still better equipped than Jeff Bezos'.
Billionaires also buy used ones
Maybe you can say goodbye to the car as a status symbol. Because when you buy a used car, you save a lot. Very wealthy people often know that Consumer goods such as cars make it difficult to build wealth, and opt for a more modest variant.
For example, did you know what US tech billionaires Jeff Bezos and Mark Zuckerberg have in common?
Both drive a car that cost less than $ 30,000! Jeff Bezos owns a 1996 Honda Accord. Mark Zuckerberg drives a Golf GTI.
You might be surprised to hear that even multi-billionaires drive such comparatively cheap cars. But the two bargain hunters are no exception. Thomas J. Stanley, who interviewed hundreds of millionaires in the US for his book "The Millionair Next Door", comes to the conclusion: Almost 40% of millionaires own a car that was cheaper than $ 30,000.
Buying a new or used car: the facts speak for a used car
The good news is: used cars are more than an attractive alternative. This can save you a lot of money when buying a car. If the initial registration is more than 5 years old, you can usually get stylish cars with a 65% discount! In contrast to the 1960s or 1970s, modern cars are far less susceptible to repairs. At that time, a car over 100,000 km was ready for scrap. Today cars drive 150,000-200,000 km without any major problems. With an average mileage of 15,000 per year, your car can last for over 10 years without hesitation.
A good guideline is: If repairs need to be made that cost more than half the residual value of your car, better sell it. Of course, don't hide the flaws. But maybe a car dealer can repair your car for less and sell it for a profit.
Even rental cars are far better than their reputation, and that's when bargains are available. Exceptions prove the rule, but most tenants treat someone else's property well. It is therefore worth taking a second look, especially at well-known providers.
Few normal earners in Germany can afford a luxurious new car. New cars just got too expensive over the years. But used cars are still possible. Mainly because modern cars are also better made and drive symptom-free for an average of 10 years. So it is conceivable for many that they will soon have a beautiful car. In addition: leasing is always more expensive than buying.
Maybe there were some helpful impulses for your decision. What are your tips for buying a car?
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