On average, a car depreciates 24% the first year and then 6% per year after that. When financing a brand new car, it is tempting to believe that we will have that vehicle forever. But what if something changes in our financial situation after year one? What if you can no longer afford the payments or you want to quit your job and do something different? The car has lost about a quarter of its value and yet you probably still owe about 84% of the loan amount. You're upside down.
My husband was driving a single cab truck. We're expecting kid #2 now and decided it was time for him to get something with a back seat. Instead of seeking out a brand new vehicle and taking on another car loan, we bought a used vehicle and paid cash. This is a risky decision as well because we do not know if this used vehicle will have a bunch of issues and if we will end up paying a lot of money in repairs. But we are trying to do the responsible thing and avoid more debt.