Should You Invest in a Used Luxury Car?
If you’re in the market for a luxury vehicle, you’re probably asking yourself whether it makes sense to buy new or used. Either way, the purchase is an asset that will be in your name, but it’s an asset that will depreciate. Unlike a home purchase, car values almost never appreciate.
But with that said, we still need to get from point A to point B. Most people aren’t buying and selling cars for profit, so depreciation plays a small part in the decision.
It is, however, one of the most significant differences between a used and new luxury vehicle.
According to Edmunds, a new car can depreciate by about 21 percent within the first year of purchase. So if you’re buying a $40,000 luxury sedan, you can expect that it’ll only be worth about $31,600 after a year. That’s a loss of $8,400. Could you think of something else to spend that $8,400 on? Because it essentially goes out the window.
But this doesn't mean that used luxury cars are immune to depreciation. Used cars also depreciate, but at a slower rate.
Let’s take the BMW 320i Sedan for example. In its first year, this $38,000 vehicle depreciates by almost $10,000. So, if you buy a 2019 BMW 320i sedan, you'll lose $9,828 within the first year. But if you buy a three-year-old BMW 320i sedan, it will only depreciate at a rate of $3,449 within that year. Depreciation rates will slowly go down with each year you own the vehicle.
As a bonus, if you buy the vehicle used, it will already have depreciated, so you will instantly save $9,828 if you wait and buy last year’s model.
From a depreciation standpoint, buying a used luxury vehicle makes a lot more sense. And if you think about anyone who has ever been “upside down” (meaning they owe more than the car is worth) within the first two years, you can see how this happens.
Mileage and maintenance
One of the biggest draws to buying a new car is that you know it’s relatively reliable. You don’t have to worry about whether it has been in an accident or got regular oil changes. You are the first owner, so it’s up to you to take care of the vehicle.
Older cars also need more maintenance. So even though they may not depreciate as rapidly as newer cars, you will spend more money on maintenance and repairs. A tune-up can cost anywhere between $200 and $800, and it’s likely on the higher end for a luxury vehicle.
So when you’re considering the cost of owning a vehicle, think about how much maintenance it may need.
Mileage is also an issue that you’ll have some control over. Regardless of age, high-mileage vehicles require more maintenance, so consider this when choosing a vehicle. Look for a well-priced vehicle with the lowest possible mileage.
Since none of us are born with automotive knowledge, it’s often comforting to get a car that comes with a comprehensive warranty. This way, if anything goes wrong, it’s covered.
This is the kind of warranty you'll get with a new car. Used cars are often sold without any warranty at all. But if you're in the market for a newer model used vehicle, your purchase from a reliable dealership may also include a warranty. Look for certified pre-owned vehicles in the make and model of your choice to find the best deal.
Luxury vehicles have a greater reputation for reliability, but that doesn’t negate your need for a warranty. It’s always good to have some peace of mind, should something go wrong.
If you’re the type of person who needs the latest and greatest technology, you might be better off with a new car purchase. Just understand that you’re paying quite a bit extra for this luxury. Also, technology does change quickly, so it can be difficult and expensive to keep up.
If you're okay with not being considered an early adopter, think about which technologies are most important to you and opt for cars of that model year or later. For example, backup cameras were considered a luxury or upgrade until the year 2015 when they started coming standard with almost all vehicles. It didn't fully become law until the model year 2018, so you may find some stragglers without backup cameras between 2015 and 2018. A few other notable introductions:
Hybrid cars were introduced in the year 2000, and smart cars first emerged around the same time, although they have gone through many advancements during this time.
Cars that have been introduced in the past five years have features like adaptive cruise control, various levels of autonomous driving and smartphone connections like Apple CarPlay and Android Auto.
Think about which features are most important to you and look for a luxury used car that’s within the model year. And remember that luxury cars generally feature more advanced technologies in their standard models than economy vehicles, so you’ll instantly be at the cutting edge of the model year you choose.
Much like with technology, safety features change quickly. Within the last decade, there have been more advances to the standard technology than ever before.
That’s because the Insurance Institute for Highway Safety (IIHS) got involved and set safety requirements for the auto industry that go beyond the federal government’s standards. This includes a small overlap front crash tests that were introduced in 2012. These tests were designed to replicate a crash to the front-corner of a vehicle when it collides with another object or vehicle. And in 2013, IIHS began rating vehicles for front crash prevention, which includes technologies like autonomous braking and collision warnings.
So, if you’re looking for a vehicle that up-to-date with all IIHS ratings, you’ll want a car in the 2013 model year or newer.
Your car purchase is a very personal one, so it’s difficult to make a wrong choice. As long as you know the pros and cons, you can make an educated decision on your next car purchase.