If you want to be a millionaire, you should buy a second-hand car!
In the book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, the authors studied the behaviour and habits of America’s millionaires. One thing that they found is that millionaires do not buy new cars. They buy used cars for reliability, not for image. They also found that the number one car brand bought by millionaires is Toyota, not Mercedes or BMW.
Why you should buy a second-hand car
It is all about depreciation: how a car loses value over time.
If you are shopping around for a second-hand car, you’ll notice that the depreciation on used cars is generally in line with the mileage.
On an entry-level car, the deprecation is about R1 for every kilometre driven. If you pick up a second-hand car with 40 000 kilometres on the clock, you will pay around R40 000 less than for a new one.
For a luxury car the depreciation can be even higher, at R3 to R4 per kilometre. You could pay R140 000 less for a three-year-old car with 40 000 kilometres on the clock.
Not only does buying second hand save you money, but it also allows you to buy the car without signing up for residual payments. Rather than opting for a R40 000 or R140 000 balloon payment, buy pre-owned.
Myths about buying a used car
We also need to bust a few myths about buying pre-owned cars.
Firstly, a new car does not come with a free service or maintenance plan. The cost of the service or maintenance plan is already built into the price – so you are still paying for it.
You can just as easily purchase a maintenance or service plan for a second-hand car. If you are buying a used car it is worth buying an extended warranty. For locally made cars, the cost of a warranty is relatively low, especially when compared to the finance costs on a new car.
Secondly, you can get finance on a second-hand car. Banks will finance a car up to ten years of age although this tends to be on cars bought from from recognised dealers.
Thirdly, you can buy a reliable second-hand car. A good pre-owned dealer will offer a full Dekra report which is a comprehensive and independent inspection of the vehicle.
Also make sure the car has a full service history, so you can confirm whether the car had any additional repairs beyond its regular servicing needs.
So go ahead and buy the car of your dreams ‒ just one that’s a few years older…