Is It Better to Buy a Used Car?

Summary

As we approach the end of the summer season, the 2022 model year is winding down, and enticing deals are being advertised. In these economically challenging times, does the conventional wisdom still hold true that it's cheaper to buy used rather than new? Our analysis provides fresh, and perhaps surprising, insights. We compared current deals on popular 2022 model-year sedans and SUVs with the prices of the same models from 2021 and 2017. In some cases, with a slight increase in payment, you can get a brand-new vehicle with better fuel efficiency and a full manufacturer warranty.

Financial Comparison: New vs. Used

To crunch the numbers, we examined current promotions for several popular 2022-model-year sedans and SUVs and compared them to the used-car prices for the same models from 2021 and 2017. In some cases, with a small increase in payment, you can get a brand-new vehicle with better fuel efficiency and a full manufacturer warranty.

Example Vehicles and Their Costs

Here are the findings for a few Consumer Reports recommended vehicles: the Toyota Camry and Honda Accord sedans, and the Acura MDX, Ford Escape, and Honda Pilot SUVs. The 2021 models have 28,000 miles, and the 2017 models have 47,000 miles. The monthly payment is calculated with the assumption that the buyer puts 10% down on a 5-year loan. For new cars, the price listed is the MSRP before incentives; for used cars, the chart shows the list price. Our calculations are based on the average New York metro-area financing rate of 3.365% for new cars and 3.310% for used cars, according to Bankrate. In considering current financing rates in several metro areas, new car loan interest rates are similar to used cars.

New vs. Used: Specific Cases

• Chevrolet Spark: A new 2022 model would cost $534 per month, while the 2020 version would run $505. For an additional $29 per month, totaling $1,766 over five years, you get a new car with zero miles and a full 3-year, 36,000-mile warranty.
• Honda Pilot: Opting for the 2017 model could save you $119 per month, which can offset the higher mileage and maintenance costs.

The Acura MDX Case

The 2017 Acura MDX might be a better deal, but in many cases like the Toyota Camry or Honda Accord, for just $100 more per month, you could drive off with the new model, as they are both discounted until the all-new 2023 models arrive.

The Bigger Picture: Total Cost of Ownership

While the purchase price is a natural focus, don't look solely at the cost to buy, but also consider how much the vehicle will cost to own over time. Factors such as depreciation, insurance, financing, fuel costs, and maintenance can add up over the years and may make that deal not look so good in hindsight.

Interesting Stats

• According to Edmunds, the average new car loses 23.5% of its value in the first year.
• A study by iSeeCars found that the average 3-year-old car costs 39.1% less than its new counterpart.
• The average age of vehicles on the road in the U.S. is now 12.1 years, according to IHS Markit.

Conclusion

These examples reflect that especially at the end of the model year, the deals available might make purchasing a new vehicle over a used one worthwhile, but it's crucial to do your research. There isn't a one-size-fits-all answer that suits all scenarios. While cost is a natural focus, don't look solely at the cost to buy, but also consider how much the vehicle will cost to own over time. Factors such as depreciation, insurance, financing, fuel costs, and maintenance can add up over the years and may make that deal not look so good in hindsight.