There are only two (real) reasons I can think of in favour of buying a new car: no prior problems and 100% customised to what you want. The other (and I suspect it is the major factor influencing these sales) is ego: we all like getting new stuff. Brand new stuff.
The problem with buy a new car is two fold: you incur interest and the car drops in value exponentially quickly.
Imagine two scenario’s: Person A who buys an old car for R100,000 with cash and Person B who buys a new car for R200,000 with a loan.
Assuming 20% depreciation of the asset per year, after Year 1, Person A’s net worth is now R80,000. Thus, Person A’s income statement got hit with a R20,000 expense.
On the other hand, Person B’s net worth is made up of two factors: the asset (now worth R160,000) and the matching liability (assuming a conservative interest rate of 10%pa, outstanding capital is R167,546.38 and total interest paid has been R18,539.28). Therefore, on paper, Person B is actually worth negative R7,546.38 (asset less liability to calculate his equity) and has total expenses of R58,539.28 (= R40,000 depreciation + R18,539.28 interest).
So, who is better, Person A or Person B?
I think the answer is pretty obvious.