Some people find the odour of alkanes, benzenes and aldehydes so glorious they're prepared to make the worst 'investment' ever as soon as those volatile organic compounds start to fade from their previous purchase.

Ah, that sweet smell of a brand new car! Don't get hooked! This addiction costs way more than you think...

Depreciation

The cost of petrol seems unimportant when compared to the hidden cost of depreciation, or the decrease in the value of your car as it ages.

Depreciation is the most expensive aspect of owning a car when it is fairly new and you're unknowingly burning loads of cash by buying a brand new car as opposed to one that has been run in.

It's certainly not unusual for a car to lose five percent of its value as you turn the ignition for the first time. Different cars have varying rates of depreciation, but it's safe to say that, on average, a one-year-old car loses about five percent of its value every three months or about 20 percent in its first year! After two years it would be worth about 40 percent less than when it was new. Typically, a three-year-old car is worth only about half of what it was when it was spanking new.

The rate of depreciation slows as the car ages and isn't a big factor when buying a car of around six years or older.

According to Moneyweb's car depreciation table, Renault and Chrysler can lose up to half their value in the first year while Volkswagen, Mercedes-Benz and Porsche have the best resale value.

A car's resale value gets pummelled in the year it's discontinued. From year two to three it can still be lower than normal, but usually normalises thereafter.

Depreciation, a new car buyer's worst enemy, becomes your greatest ally when you buy second-hand. It means you can buy a perfectly good three-year-old car with all the latest gadgetry for half the price of a new one! And on top of that you won't be hit by such severe depreciation yourself. Buying second hand means more car for less money. Do you want an Audi, but can only afford a Volkswagen? Make depreciation work for you and get the car you want. Keep in mind, however, that it might cost more to maintain and insure the Audi than the Volkswagen, so be cautious when you buy your dream car.

What does your car really cost?

Besides depreciation there are other costs that make buying a new car extremely expensive and more so than you think.

Insurance for new cars are very expensive, but becomes cheap rather quickly as the car ages and devalues.

Almost everyone needs to borrow in order to afford a new car. The interest you pay to finance a new car is an expense many people fail to consider. By buying a cheaper, pre-owned car you'll not only save the difference in the purchase price, but also the difference in interest payable. Pay cash for an old car and this expense disappears completely.

Lastly, there is also the opportunity cost of buying a new car. This is the amount you would've had extra had you invested your money or paid off part of your home loan rather than paying for the privilege of being the first to own your car. Opportunity costs also include what you could otherwise have spent the money on. You can, for example, buy a brand new Polo Classic 1.4 and pay R120 000 (without taking insurance or the cost of finance into account). Alternatively, you can buy a four-year-old Polo, same model, for R60 000 and backpack in Southeast Asia for a couple of months.

Need more reasons to buy used rather than new?

Cars have become extremely reliable and, provided they're taken care of, may last 20 years or more. Most car manufacturers now have service plans or certification programs like those they have for new cars. These usually include a thorough inspection and a factory backed guarantee.

Buying a pre-owned car with a service plan or certification program removes the uncertainty that often accompanies the purchase of a second-hand car. Certified used cars are slightly more expensive than those bought privately or uncertified, but for many people the peace of mind is worth it.

Find it on the internet

You'll most certainly find what you want on the internet. So, before you start looking for a new car why not check out which one- or two-year-old models are available?

For the car of you dreams visit the following sites:

Owning a new car is very expensive and more so than most people realise. Borrowing money to buy a fast depreciating asset is certainly the worst 'investment' you can possibly make.

Buying a car, new or used, can be a very emotional experience and car salespeople know and exploit this. It's a good idea to take along a spouse, friend or family member that doesn't share your enthusiasm and can keep you in check.

When budgeting for a car, remember to keep in mind more than just the purchase price. Depreciation, insurance and maintenance should also be included in any calculations you make when determining what you can afford.

A cared for two-year-old will give you exactly the same service (minus the toxic chemicals) for much less than a brand spanking new one, but if you really want to save buy a really old cheapy, pay cash and drive it until the wheels fall off. Even with high maintenance costs and poor fuel consumption you'll still be laughing all the way to the bank and back.

  • Do you agree with Kabous that buying used is a smart move? Do you have any tips for those in the market for a second hand car? Leave a comment below...

    On page two: Buying used? Don't let that 'bargain' turn into a bad deal! All the pitfalls to avoid and checks you need to do...


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