The truth about 0% financing on that new car
byDec 23rd 2007 11:38AM
I've recently become a huge fan of financial guru Dave Ramsey. On his radio show and in his books, he distills personal finance into a set of pretty simple principles, and he cuts through a lot of the garbage. Here's a gem from his chapter on myths about debt from his amazing book The Total Money Makeover: A Proven Plan for Financial Fitness:
Myth: You can get a good deal on a new car at 0 percent interest.
Truth: A new car loses 60 percent of its value in the first four years; that isn't 0%.
I don't think anyone has ever explained the problem with buying a new car so well. Here's what you need to remember when you're shopping for a car: Buying a new car is pretty much always a bad idea. No matter how good a deal you get, you're buying a depreciating asset at the moment before it heads into its most rapid depreciation.
Plus, you're buying it before it's been out for a few years -- You know nothing about the model year's reliability or any other issues that tend to crop up after the car's been on the road for a few years.
So when is it OK to buy a new car? When you have so much money that it doesn't matter at all. Until then, stick with used cars that you can afford to buy with cash.