Buying a New Car: This Year or Next?
Every year in the late summer or early fall car manufacturers start rolling out their new models. This generally translates into some sort of 'clearance' event at dealerships as they try to sell off their old stock. But does it pay to buy last year's car? According to a recent article on CNN/Money, the answer depends on what type of owner you are and which car you're buying.
The main issue here is depreciation... If you buy the older model year, that extra year will cost you when it comes time to sell your car or trade it in. Moreover, if the car has been redesigned for the new model year, then you'll take an even bigger hit. The bottom line here is that last year's cars are marked down because they're actually worth less, at least in the short term. So when should you consider it? Here are some rules of thumb...
If you're a short term owner (≤ 5 years) and the car has been redesigned for the new model year, then you'll be better off paying a bit extra for the newer version.
If you're a short term owner and the car hasn't been redesigned, then you might come out ahead with the older model year, but only if you can get a really big discount.
If you're a long term owner (≥ 5 years) and the car has been redesigned, then buy whichever one you happen to like better -- the difference in resale value will be minimal by the time you finally get around to selling.
Finally, if you're a long term owner and the car hasn't been redesigned, then it's a no-brainer... Buy the older model year. You should save a bundle up front, and you'll only take a minimal hit on the back end when it comes time to sell.
This last scenario fits us to a T... We tend to drive our cars forever (if not longer), and the 2006 Honda CR-V is exactly the same as the 2005 CR-V that we ended up buying. By the time we decide to sell, that extra year will cost us next to nothing, but we were able to save a substantial chunk of change up front.
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"Buying a New Car: This Year or Next?" was first published at fivecentnickel.com
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This is insiteful. However, I can't imagine buying a car for the short term ever. Too much of a financial hit.
