Is a Car a Good Investment?

There is something really exciting about buying a new car.

It smells like an expensive gem and sports the latest technology and modern navigation system. It comes with extremely low mileage and polished design and looks that make everyone go ‘wow!’ Most importantly, it elevates your status symbol and gives you a class in society.

But let’s face it! Is a car really a good investment?

The truth is, a car is one of the worst investments you’ll make in your life. Automobiles lose more than 10% of their value during the first month after you drive off the lot. They also require continual additional costs to stay on the road.

Worst of all, after you decide to sell it off you can lose more than 50% of your initial investment. However, if done right, buying a car can be a smart investment. Here are some things to do to make sure you lose less on your investment.

1. Buy a Used Car

Did you know the value of a new car depreciates by 20% the second you drive it off the lot?

Did you also know that afterwards, its value will decrease by 10% during the first year of ownership? That means if you buy a brand new car, you’ll be paying 30% more than you would be if you bought it used a year later.

The trick here is to let the first owner take the initial depreciation hit, then leap the benefits.

By purchasing a car that is more than 1 year old, you won’t have to lose your investment pounds to the 1st year of depreciation. Better still, you get a car with all the latest technology and low mileage, so it’s just like you bought it brand new.

Plus, you’ll also be able to buy personalised number plates to give your car a new look. There are many reputable companies such as Absolute Reg - a UK website for private registrations, that can help you with the swapping of plates and all the legal work involved.

2. Buy in Cash

To lose less in your investment, the rule of thumb is to pay in cash.

Suppose £23,000 is the amount you’re planning to invest in a car. If you pay in cash, you could save an estimated £3,000 in finance charges on a £23,000 car.

But if you’re smart enough to buy a 4-year old car and pay cash, you could have around £10,000 leftover from your initial £23,000 budget. You can then invest the saved £10,000 in high paying dividend stock and get a good annual return on investment.

3. Buy a Model Known for Reliability and Fuel Efficiency

An average UK motorist spends £162 per month on fuel and maintenance, according to a recent report.

To cut down on costs, it’s recommended to buy a car that is known for fuel efficiency. Typical examples of fuel-efficient cars include Peugeot 308, Nissan, Mercedes Benz A class, etc.

Reliability is also a key factor to consider, as reliable cars will have minimal repair costs.

Information from consumer reports and Car Reliability Index can give you valuable insights into what model of car is best to buy in terms of reliability and repair costs.

Final Thoughts

Keep in mind that buying a used car doesn’t always guarantee you’ll save on your investment income. If done without due diligence, you could get stuck with a lemon that will end up chewing your savings. To protect yourself further, it’s worth thinking about an extended car warranty (see here) to provide that extra piece of mind.