**A Financial Challenge Can Arise When One Purchases a New Car Because**
For many people, buying a new car feels like a symbol of maturity. It's a financially responsible move, we think, because it will provide a much-needed step toward independence and the kinds of roads that my path might cross with yours. Yet, despite all the independence a new car might afford us, in a material sense, an in-depth look at the actual costs of acquiring and operating a vehicle often leads one to the conclusion that it's a financially irresponsible act. And what a long look one has to take, for such an act is laden with decisions that have costs, both immediate and deferred.
The main financial problem linked to purchasing a new car is the upfront expense. The typical cost of a new car in the U.S. is now well over $40,000, and it's hard to find a model that sells for much less. For most of us, that's a huge chunk of our annual income. Even if you manage to come up with the cash to pay for the car, the financing deals can be a bit usurious, especially for those of us who don't have totally mint credit. When you add up the monthly payments and consider the drain on your budget, it's a wonder that anyone can afford to buy a car and support all the other mandatory life expenses that come up.
Financing a new vehicle can tie buyers to significant long-term debt. Though some buyers may be able to pay upfront for a car, many shell out money every month. Car loans financed over a three- to seven-year range are common. During these years, binding car loan contracts might impede buyer flexibility, making it hard to spend money elsewhere or cover sudden life events. And if buyers try to resolve the situation by selling the car or trading it in before paying the loan off, they're likely facing negative equity.
Another major financial hurdle is the price of insurance. Typically, new car insurance premiums are higher than those for used vehicles. Yet, when one is in the market for a new car, one must also consider the cost of insuring that new car and not just the cost of the car itself. This is especially important if one is financing the vehicle because lenders often mandate that the car owner carry comprehensive and collision coverage, which can make the cost of insuring a new car even more exorbitant.
Owning a new car brings several financial problems, and maintenance and repair costs are part of the puzzle. "Penny-pinching" is not something that comes easily or naturally to anyone, but it is a way of life that many of us must adopt. We must find ways to save money because our income is not stretching far enough to cover the basic costs of living and the added expenses we incur when a new vehicle comes into play. Warranties can cover a portion of vehicle repairs and maintenance, but what happens when we are expected to pay for parts and labor? Once the newness has worn off, freedom from financial constraints does not immediately follow. Depending on the routine, "basic" upkeep can cost hundreds if not thousands of dollars annually. And if we are financially pinched, is it even safe to maintain the vehicle in a manner that diligence requires?
Another crucial aspect that can produce monetary headaches when purchasing an automobile is depreciation. A new car's value drops fast, with some estimates claiming that it can lose over 20% of its worth within a year of being bought. So, if someone sells or trades in their vehicle after a few years, they're liable to get back a fraction of what they spent—at least almost a fraction. If the seller was also a buyer of the new car, he or she was probably operating under the old notion that a car is worth what you paid for it, plus a little more if you can swing it.
Moreover, the choice to acquire a new automobile can drive people toward inflation in lifestyle. Car buyers often buy a car that is not just a car but a statement of their status and lifestyle. They go for not just comfortable vehicles but for ones that give them the feeling of prestige. But how comfortable are they and how much of a statement are they making if their new ride is financially straining? The payments, the insurance, and the upkeep can be a bear, and if you're reaching for those higher-end models, you may be financially stressed and on the ragged edge of debt.
To sum up, although acquiring a new automobile can be a thrilling moment in life, it is necessary to acknowledge the accompanying monetary problems that this choice entails. The immediate buying price and financing arrangements are just the beginning; after that come insurance, upkeep, and the resentment most of us feel when we look at a car's depreciation schedule. As you might guess, I'm not a huge fan of cars, so the thought of pouring all those giddy months of graduate stipend into a vehicle—of all things!—struck me as crazy, given how much we'd worked and how little we could expect to earn in the future.