Purchasing a vehicle often presents a significant dilemma: should you buy new or pre-owned? As we approach the end of the summer season, the 2023 model year is winding down, and dealerships are offering enticing promotions. In these economically uncertain times, does the age-old wisdom still hold true that buying used is more cost-effective than buying new? Our analysis provides fresh and sometimes surprising insights.
Buying a pre-owned vehicle can lead to substantial financial savings compared to purchasing a brand-new one, often exceeding $8,000. This article delves into the cost differences between new and used cars, examining various models and their associated expenses. We also explore the broader financial implications, including depreciation, insurance, and maintenance costs, to help you make an informed decision.
To crunch the numbers, we examined current deals for several popular 2023 model-year sedans and SUVs and compared them to the used-car prices for the same models from 2021 and 2018. In some cases, with a slight increase in monthly payments, you can get a new car with zero mileage and a full manufacturer warranty.
To illustrate our findings, the table below highlights the differences between five Consumer Reports-recommended vehicles: the Hyundai Sonata, Honda Accord sedans, and Acura MDX, Ford Escape, and Honda Pilot SUVs.
| Model | Year | Mileage (miles) | Monthly Payment (USD) | New Car MSRP (USD) | Used Car Price (USD) |
|---|---|---|---|---|---|
| Hyundai Sonata | 2023 | 0 | 450 | 25,000 | 18,000 |
| Honda Accord | 2023 | 0 | 470 | 27,000 | 19,500 |
| Acura MDX | 2023 | 0 | 600 | 45,000 | 32,000 |
| Ford Escape | 2023 | 0 | 400 | 24,000 | 17,000 |
| Honda Pilot | 2023 | 0 | 534 | 36,000 | 25,000 |
Data Source: Consumer Reports
Our data assumes a 10% down payment on a 5-year loan. For new cars, the price listed is the MSRP before any deals; for used cars, the chart shows the dealer price. We used the average New York metro-area loan rate of 3.365% for new cars and 3.310% for used cars, according to Bankrate.com. Interestingly, current financing rates for new cars are similar to those for used cars across five metro areas.
The Honda Pilot is one example where a new car might be worth the extra cost. A lightly refreshed 2023 model would cost $534 per month, while the 2021 model would run $505. For an additional $29 per month, totaling $1,766 over five years, you get a new car with zero mileage and a full 3-year, 36,000-mile warranty.
The Acura MDX is another example where a 2021 model might be a better deal. However, in some cases, like the Hyundai Sonata or Honda Accord, for $100 more per month, you could drive away with the new model, as they are both lower in anticipation of all-new 2024 versions.
While the purchase price is a natural focus, it's essential to consider the total cost of ownership over time. Factors such as depreciation, insurance, financing, fuel costs, and other operating expenses can add up and might make that deal not as attractive as it initially seems.
New cars typically lose about 20% of their value within the first year and around 60% after five years (Edmunds). This rapid depreciation can make used cars a more financially sound choice.
Insurance rates for new cars are generally higher than for used cars. Additionally, while new cars come with warranties that cover many repairs, used cars might require more maintenance, which can offset some of the initial savings.
These examples illustrate that especially towards the end of the model year, the deals available might make a new vehicle worth considering over a used one. However, it's crucial to do your homework. There isn't a one-size-fits-all answer. While the purchase price is important, consider how much the car will cost to own over time. Factors like depreciation, insurance, financing, fuel costs, and other operating expenses can add up and might make that deal not as attractive as it initially seems.
By weighing all these factors, you can make a more informed decision that best suits your financial situation and driving needs.
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