Should I Buy a New or Used Car?

When you’re purchasing round for some new wheels, it’s straightforward to get swept off your ft by all the flowery bells and whistles inside the most recent automobiles to hit the market.

In spite of everything, among the newest fashions include all these cool new options like heated steering wheels and massaging seats. That’s proper, the seats provide you with a therapeutic massage. What a time to be alive. It’s nearly sufficient to make you neglect in regards to the 1–2-year-old used automobiles which might be additionally sitting within the dealership lot. As a result of these are so final yr.

However is new actually higher? What are the professionals and cons?

New vs. Used Vehicles: Which Are Higher?

We’re not going to beat across the bush: The perfect manner to purchase a automotive is to avoid wasting up and buy a reliable, slightly used car (with money). You’re all the time going to be higher off shopping for used and paying up entrance as a substitute of going for the shiny new mannequin that some overcaffeinated automotive salesman is attempting to get you to borrow cash for.

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The selection between a brand new or used automobile (and the way you pay for it) might be the distinction between driving the freeway to wealth and monetary independence or spinning your wheels in a rut of debt and endless payments.

But when that new automotive scent has given you a severe case of automotive fever, the one prescription is chilly, exhausting numbers. So let’s get proper all the way down to it!


“Purchase a brand new automotive,” they stated. “You gained’t have to fret about repairs or upkeep,” they stated.

First, security is all the time a priority. And one of the frequent arguments towards shopping for a used automotive is that it’ll put on out sooner and gained’t be as dependable as the brand new ones rolling straight off the meeting line.

The reality is that regardless of all of the claims from your folks and neighbors on the contrary, you could find like-new used automobiles which might be simply as protected and reliable as a brand new automotive—and at a less expensive value.

You’ll find like-new  used automobiles which might be simply as protected and reliable as a brand new automotive—and at a less expensive value.

The truth is, some newer automobiles (particularly fashions of their first yr of manufacturing) are among the many ­least dependable automobiles you’ll be able to drive.1 From defective air conditioners to troublesome transmissions, many drivers of newer mannequin automobiles find yourself making fixed journeys to the mechanic or getting manufacture recall notices within the mail.2

So simply take note whenever you’re automotive purchasing that new doesn’t routinely equal protected. All of it is determined by the kind of automotive you’re taking a look at and the way lengthy the automotive has been on the street.


Now for the maths. Whether or not you’ve gotten a automotive, a ship or a lawnmower, all of them go down in worth over time as they undergo the wear and tear and tear of on a regular basis use. That loss in worth is named “depreciation,” and it’s a reality of life.

However right here’s the kicker with regards to automotive depreciation: New automobiles lose their worth at a a lot quicker charge than used automobiles do. Relying on the make and mannequin, some automobiles may maintain their worth slightly higher than others. However all of them lose their worth over time—particularly new ones.

Simply how briskly do new automobiles lose their worth? Buckle up. It’s going to be a bumpy trip! Right here’s a have a look at how shortly a brand new automotive loses its worth:

  • After One Minute: When you purchase a shiny new $35,000 automotive, it loses someplace between 9–11% of its worth the second you drive off the lot. You’re mainly throwing $3,500 out the automotive window as you drive the automotive dwelling for the primary time!

  • After One 12 months: Quick-forward 12 months and that automotive sitting in your driveway could have misplaced round 20% or possibly much more of its worth from the day you purchased it.

  • After 5 Years: You may anticipate your new automotive to lose 60% of its worth after driving it round for 5 years.3 Most automobiles lose about 10% of their worth yearly after that steep first-year dip.4   

Preliminary Automotive Worth $35,000
New Automotive Worth After . . .

1 minute


1 yr


2 years


3 years


4 years


5 years


When you purchase a $35,000 shiny new automotive, that automotive loses someplace between Sep 11% of its worth the second you drive off the lot. Quick ahead 12 months and that automotive will lose round 20% of its worth from the day you purchased it.

Give it some thought: When you simply wait just a few years, you might let another person tackle the brunt of these first few years of depreciation and purchase a good-as-new automotive for half the worth!

And don’t even take into consideration financing it with automotive funds. Issues with motors in them go down in worth, and it’s best to by no means borrow cash for something that goes down in worth. No exceptions!

The True Value of Shopping for New vs. Used

Let’s see how this performs out in actual life. Let’s say Jack and Tony are each trying to purchase new autos. Jack decides to avoid wasting up and purchase a dependable used automotive with money whereas Tony goes the “regular” route and funds a brand new truck.

The common new automotive mortgage is $31,722 with a month-to-month fee of $545 over a median mortgage time period of 69 months.5That’s nearly six years of $545 automotive funds.

To place these numbers in perspective, let’s say Tony takes out a median automotive mortgage ($31,722) with a median month-to-month fee ($545) for the common mortgage time period (69 months) and retains the truck all through the top of the mortgage.

Like we talked about earlier, his new truck begins shedding worth the second he drives it off the lot and continues to lose an enormous chunk of its worth within the first few years. After 4 years, it’s price lower than half of what Tony purchased it for and continues to drop 10% annually after that.

That signifies that on the finish of the six-year mortgage, Tony paid $37,605 in automotive funds for a truck that was initially price lower than $32,000 and is now price about $10,000 (if he’s fortunate) on the finish of the mortgage time period.

In the meantime, Jack discovered a four-year-old sedan with low mileage and loads of life left within the tank for $12,000, and he paid for it with money. Which means he owns the automotive free and clear. No funds!

So what might Jack do with an additional $545 every month that he’s not utilizing to repay the automotive?

In a single situation, he might put all these financial savings towards upgrading his automotive down the street. If he saves $545 each month, he might purchase a $20,000 automotive in simply three years, whereas Tony continues to be simply midway by way of the mortgage on his truck.

Higher but, what if Jack swears off automotive funds and invests that $545 in solid-growth inventory mutual funds from age 30 to 70? Assuming a median annual charge of return, he might find yourself with greater than $5 million saved for retirement.

And what would occur if he splits that common month-to-month automotive fee evenly between saving for his subsequent automotive and retirement investing? Jack might hold shopping for barely used automobiles for $12,000 each 4 years and nonetheless have $1.5 million saved for retirement by the point he hits age 65.

We hope Tony likes the truck!

Is It Ever Okay to Purchase a New Automotive?

As a common rule of thumb, the whole worth of your autos (something with a motor in it) ought to by no means be greater than half of your annual family earnings. Dave doesn’t advocate shopping for a brand new automotive—ever—till your web price is greater than $1 million. When you’re a millionaire and also you need to purchase a brand new automotive that prices a very small proportion of your web price, then go for it.

Once we lately requested everyday millionaires what sort of automobiles they drive, we discovered that the common millionaire drives a four-year-old automotive with 41,000 miles on it. And eight out of 10 millionaire automotive consumers drive it away debt-free with no automotive fee.

The true drawback with new automobiles is that the overwhelming majority of the individuals who purchase them (85%) both take out a mortgage or a lease to get one.6 And at this time, thanks largely to our love affair with new automobiles, greater than 113 million People have taken out auto loans and owe $1.27 trillion with a T in automotive debt. Solely mortgages and scholar loans account for extra of America’s complete debt steadiness.7

Because of this, most folk who purchase a brand new automotive wind up feeling like their automotive owns them as a substitute of the opposite manner round.

Shopping for Used Will Save You Cash on Automotive Insurance coverage

We’ll shut with this one as a result of a variety of automotive consumers neglect to issue this into the equation after which undergo the sticker shock from the steep insurance coverage premiums that include a brand new automotive.

Drivers of latest automobiles typically get caught with higher-than-average premiums. As a result of new automobiles are extra pricey to restore or substitute, additionally they price extra to insure. Even with among the newest security expertise, insurance coverage firms not often provide reductions to new-car drivers for having these options.

Whereas new-car drivers will spend roughly $1,650 that yr on automotive insurance coverage premiums, you might save 12% on insurance coverage premiums if you happen to purchase a five-year-old model of the identical automotive.8

When you’re buying a automobile and are prepared to save cash on automotive insurance coverage, our Endorsed Native Supplier (ELP) insurance coverage brokers might help you discover the most effective offers on auto protection in your space.

Find an independent agent today!

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