Should You Buy a New or Used Car?

The Cost Comparison: New vs. Used

To crunch the numbers, we examined recent deals for several popular 2012-model-year sedans and SUVs and compared them to the used-car prices for the same models from 2010 and 2008. In some cases, with a slight increase in monthly payments, you can get a brand-new car without the mileage and with a full manufacturer warranty.

Example Vehicles and Their Costs

To illustrate our findings, the table below highlights the disparities for five Consumer Reports recommended vehicles: the Toyota Camry and Honda Accord sedans, and the Acura MDX, Ford Escape, and Chevrolet Traverse SUVs. The 2010 models have 28,000 miles, and the 2008 models have 48,000 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 the MSRP before incentives; for the used cars, the chart shows the market value. Our calculations use the average New York metro-area finance rate of 3.365% for new cars and 3.310% for used cars, according to Bankrate.

Key Insights

1. Toyota Camry: A new 2012 model costs $534 per month, while a 2010 model costs $505 per month. 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.
2. Chevrolet Traverse: The 2012 model costs $505 per month, while the 2008 model costs $385 per month. Opting for the 2008 model saves you $119 per month, which can offset the mileage and potential repairs.

The Acura MDX Case

The Acura MDX is another example where the 2008 model might be a better bargain. However, in some cases like the Hyundai Sonata or Honda Civic, for less than $100 extra per month, you could drive away with the new model, especially with discounts pending all-new 2013 models.

Factors to Consider Beyond Purchase Price

While the out-the-door cost is a common focus, it's crucial to consider the total cost of ownership over time. Factors such as depreciation, insurance, financing, fuel expenses, and other operating costs can quickly add up and may make that seemingly good deal not so attractive after all.

Depreciation

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

Insurance rates for new cars are generally higher than for used cars. According to ValuePenguin, the average annual cost of insuring a new car is $1,674, compared to $1,325 for a used car.

Financing

Interest rates for new car loans are often lower than for used car loans. However, the total interest paid over the life of the loan can be higher for new cars due to the higher principal amount.

Fuel and Maintenance

Newer cars often come with better fuel efficiency and lower maintenance costs, which can offset some of the higher purchase prices.

Conclusion

In conclusion, whether to buy a new or used car depends on various factors, including your financial situation, the specific models you're considering, and how long you plan to keep the vehicle. While new cars offer the latest features and warranties, used cars can provide significant savings. It's essential to do thorough research and consider all aspects of ownership before making a decision.

By weighing the pros and cons and considering the total cost of ownership, you can make an informed decision that best suits your needs and budget.