When it comes to purchasing a vehicle, one of the primary decisions you'll face is whether to buy a pre-owned or new car. As we approach the end of the year, the 2023 models are winding down, and enticing deals are being advertised everywhere. In these challenging economic times, does the conventional wisdom still hold true that it's cheaper to buy used rather than new? Our research provides fresh and even surprising insights.
Deciding between a new or pre-owned car can significantly impact your finances. While new cars offer the latest features and full warranties, pre-owned vehicles can provide substantial savings. This article delves into the cost differences, financing options, and long-term expenses associated with both choices, offering a comprehensive guide 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 2019. In many cases, with a moderate increase in monthly payments, you can get a new car with zero mileage and a full manufacturer warranty.
To illustrate these findings, the table below highlights the differences for several Consumer Reports recommended vehicles: the Honda Accord and Toyota Camry sedans, as well as the Acura MDX, Hyundai Santa Fe, and Ford Explorer SUVs.
| Vehicle Model | Year | Mileage | Monthly Payment | New/Used |
|---|---|---|---|---|
| Honda Accord | 2023 | 0 | $450 | New |
| Honda Accord | 2021 | 28,000 | $420 | Used |
| Toyota Camry | 2023 | 0 | $460 | New |
| Toyota Camry | 2021 | 30,000 | $430 | Used |
| Acura MDX | 2023 | 0 | $550 | New |
| Acura MDX | 2019 | 48,000 | $500 | Used |
| Hyundai Santa Fe | 2023 | 0 | $470 | New |
| Hyundai Santa Fe | 2019 | 50,000 | $440 | Used |
| Ford Explorer | 2023 | 0 | $540 | New |
| Ford Explorer | 2019 | 45,000 | $510 | Used |
Source: Consumer Reports, Bankrate.com
Our calculations assume 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 data indicates a retail price. We used the average New York City metro-area loan rates of 3.365% for new cars and 3.310% for used cars, according to Bankrate. In examining current financing rates in five metro areas, new car loan rates are similar to those for used cars.
The Nissan Pathfinder is an example where a new vehicle might be worth the extra cost over a 2-year-old model. 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 vehicle with zero miles on the odometer and a full 3-year, 36,000-mile warranty.
The Acura MDX is another model where the 2019 version might be a better deal. However, in some cases like the Honda Accord or Toyota Camry, for less than $100 extra per month, you can drive away with the new model, as they are both lower in anticipation of all-new 2024 models.
While the initial purchase price is a natural focus, it's crucial to consider how much the vehicle will cost to own over time. Factors such as depreciation, insurance, financing, fuel costs, and other operating expenses can quickly add up and might make the deal not as attractive after all.
New cars typically lose about 20% of their value within the first year and around 60% after five years, according to Edmunds. Used cars, on the other hand, have already undergone significant depreciation, which can make them a more financially sound choice in the long run.
Insurance rates for new cars are generally higher due to their higher replacement costs. Maintenance costs, however, can be lower for new cars as they are less likely to need repairs and often come with maintenance packages.
These examples show that particularly at the end of the model year, the deals offered can make choosing a new car over a used one worthwhile, but it's essential to do your homework. There isn't a one-size-fits-all answer that suits all cases. While cost is a natural focus, don't just look at the purchase price but also consider how much the vehicle will cost to own over time. Factors such as depreciation, insurance, financing, fuel costs, and other operating expenses can quickly add up and might make the deal not as attractive after all.
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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