Why New?

Making the decision to purchase a new car comes with a few need-to-knows—like that your new car depreciates, or loses value, dramatically the moment you drive it off the lot. So why choose a new car over used? Here are some reasons.

Technology: From fuel efficiency to parking assistance, new cars offer the latest in engineering, style and mechanical innovation.

Safety: Similar to technology, manufacturers are continually making improvements on safety features.

Reliability: Drivers can appreciate the peace of mind that a new, mechanically sound vehicle provides.

Affordability: Used cars are generally priced lower than similar new cars. However, the interest rates on new car loans tend to be lower.

An auto loan calculator can help you determine how the interest rate and purchase price will translate to a monthly payment. Although you might be able to get a monthly payment for a new car to be the same (or lower) as that for a used vehicle, be sure to consider both the term and rate when assessing a loan’s affordability. A lengthy term can lower your monthly payments but cost more over the entire term.

Online Research Tools

Once you’ve decided to pursue a new car, get online and start your research. Both NADA Guides and Autotrader provide thorough analyses of almost every new car imaginable. These research databases allow you to search and compare cars based on various attributes (fuel economy, engine, horsepower, etc.) and pricing, including the MSRP (manufacturer’s suggested retail price) and cost of ownership over five years.

Depreciation

One downside to purchasing a new car is that it loses value very quickly. Car depreciation is the amount of value a vehicle loses over time, and that figure can vary dramatically, depending on the model, make or year. If you’re planning on having your car for five years or less, depreciation should be a big consideration during your buying process. That is because a car loses value much more quickly in the beginning—on average, according to Edmunds.com, a new car loses 11 percent of its value the moment you drive off the lot. At five years, the average car is worth just 37 percent of what you paid for it at the dealership brand new. After the five-year mark, the resale value of a car levels off a bit. Though it still loses value over time, it’s not as large of a drop year after year.

Depreciation is the amount of value a vehicle loses over time.

Depreciation becomes a problem should you need to sell your vehicle quickly or if an accident occurs. Depending on how much you put down on the car, you may owe more than what the car is worth. For example, if your new car is totaled in an accident, the insurance settlement may be based on the actual cash value, not the outstanding loan balance, creating a gap—money you still owe on the loan after the insurance pays its portion. That is why some new car owners decide to protect the difference between their loan and their vehicle’s value using GAP insurance (Guaranteed Asset Protection).  

Choosing a Dealer

When looking for the right dealer, don’t base your research on prices alone; try to find one that has been in business for some time and is highly rated by either the Better Business Bureau or NADA Guides. When checking dealer prices, keep in mind the options you’ll want included with your car. Whether it’s a sun roof or a bigger engine, these are additional costs that will increase the car’s base price.

Once you’ve picked your car and begin negotiating, you’ll see some charges and fees added to the initial cost of the car. Two of these are “destination charge” and “marketing fee.” A destination charge is the cost the dealer was charged for getting a new car to its lot, while the marketing fee is a charge the dealer imposes to help pay for its advertising and marketing costs. Most dealers may consider lowering their price by eliminating either one or both of these fees, so ask about them.

To help maximize your savings and make your dealer visit even easier, you can also locate a dealer through the Navy Federal Auto Buying Program. You’ll find an exclusive network of trained program dealers who are ready to provide you with established program pricing and a simplified, no-stress buying experience.

Warranties

When buying your new car, you’ll have various warranty options to choose from. Here are a few of the more common policies you’ll come across:

Bumper-to-bumper: This basic warranty covers components like air conditioning, audio systems, sensors, fuel systems and major electrical components. Most of these policies exclude regular maintenance like oil changes. Bumper-to-bumper warranties usually expire faster than powertrain warranties.

Powertrain: This warranty typically covers just the engine and transmission, along with any other moving parts that lead to the wheels. It’s rare, but some automakers also bundle seat belts and airbags into their policies. Note that regular maintenance, tune-ups and tire rotations aren’t normally covered by powertrain warranties.

Extended warranty: Offered by most dealers, this supplemental warranty may be enticing because it extends beyond the standard powertrain and bumper-to-bumper policies. Most vary, so it’s wise to do some fact checking, especially to make sure it’s backed by the automaker.  

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