Deciding between a new or used car is a significant financial decision that many people face. As we approach the end of the summer, the 2022 model year is winding down, and enticing deals are being advertised. In today's economic climate, does the conventional wisdom still hold true that buying used is cheaper than buying new? Our analysis offers fresh and sometimes surprising insights.
Choosing between a new or used car is a crucial financial decision. As the 2022 model year winds down, enticing deals are being advertised. In today's economic climate, does the conventional wisdom still hold true that buying used is cheaper than buying new? Our analysis offers fresh and sometimes surprising insights. We compared current deals on popular 2022 models with used car prices for the same models from 2020 and 2017. The results may surprise you.
To break down the numbers, we examined current deals on several popular 2022-model-year sedans and SUVs and compared them to the used-car prices for the same models from 2020 and 2017. In some cases, with a slight increase in monthly payments, you can get a new vehicle with no mileage and a full manufacturer warranty.
For instance, let's look at five Consumer Reports recommended vehicles: the Honda Accord and Ford Fusion sedans, and the Acura MDX, Hyundai Santa Fe, and Honda Pilot SUVs. The 2020 models have 28,000 miles, and the 2017 models have 47,000 miles. The payment amount is calculated with the assumption that the buyer puts 10% down on a 5-year loan. For the new cars, the price listed is MSRP before incentives; for the used cars, the chart shows the retail price. Our calculations use the average New York metro-area finance rate of 3.365% for new vehicles and 3.310% for used vehicles, according to Bankrate.com.
| Model | Year | Mileage | Monthly Payment | Total Cost Over 5 Years |
|---|---|---|---|---|
| Honda Accord | 2022 | 0 | $534 | $32,040 |
| Honda Accord | 2020 | 28,000 | $505 | $30,300 |
| Honda Accord | 2017 | 47,000 | $450 | $27,000 |
| Ford Fusion | 2022 | 0 | $520 | $31,200 |
| Ford Fusion | 2020 | 28,000 | $490 | $29,400 |
| Ford Fusion | 2017 | 47,000 | $440 | $26,400 |
While the purchase price is a significant factor, 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 over the years and may make that bargain not as good as it initially seems.
New cars typically lose about 20% of their value within the first year and about 60% after five years (Edmunds). Used cars have already undergone this initial depreciation, which can make them a more financially sound choice in the long run.
Insurance rates for new cars are generally higher than for used cars. According to The Zebra, the average annual cost of car insurance in the U.S. is $1,674, but this can vary significantly based on the car's age, make, and model.
Interest rates for new car loans are often lower than those for used cars. As of 2022, the average interest rate for a new car loan is 4.21%, while for a used car loan, it's 8.36% (Experian).
Newer models often come with better fuel efficiency, which can save you money in the long run. For example, the 2022 Honda Accord gets an average of 30 MPG, while the 2017 model gets around 26 MPG (EPA).
These examples show that, especially towards the end of the model year, the deals available can make choosing a new car over a used one worthwhile. However, it's crucial to do your research. There isn't a one-size-fits-all answer that suits every situation. While the purchase price is a natural focus, don't look solely at the cost to buy, but also how much the car will cost you to own over time. Factors like depreciation, insurance, financing, fuel costs, and other operating expenses can add up over the years and may make that bargain not as good as it initially seems.
In summary, whether to buy a new or used car depends on various factors, including your financial situation, the specific models you're considering, and the deals available at the time. By carefully weighing these factors, you can make a more informed decision that best suits your needs and budget.
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