Million Dollar Journey

Building Wealth through Saving and Investing

Welcome to Million Dollar Journey! If you're new here, you can learn about me, read our user guide, and even follow my net worth updates. A great place to start reading is with the popular articles located in the right side bar. If you would like to join thousands of others and keep up with the free daily updates, you can subscribe to the RSS feed via reader or E-mail.

On your way out, make sure to check out the exclusive Million Dollar Journey Freebies and Deals.

New Car every 10 years or Used Car every 5?






David asked an interesting question in the comments section of “Best and Worst Used Cars of 2007“, the question was:

.. is it cheaper to buy a used car every 5 years, or a new one every 10 – 12? I currently have a ‘95 Dakota (needed a new rear diff this year (caused by towing?) and the ECU died). Once the loan was paid, I had 7.5 years of trouble-and repair-free driving. I still have it, but bought a smaller vehicle this year (also new) which I expect to keep for a similar lifespan. The new vehicle has a 7 year bumper to bumper warranty, so I should have no repair expense during that time.

Doing some research around the net, it seems that cars depreciate 20% right off the lot in addition to the regular 7-12% depreciation / year. Of course this depends on the make/model of your car, features, colour, KM’s etc.

For the sake of simplicity, we’ll assume 32% depreciation in the first year, along with 12% depreciation every year after that. You guys can check the Canadian Black Book to confirm the depreciation of your favorite car maker/model. I tested these numbers on Hyundai’s and they are spot on. However, Honda’s/Toyota’s hold their values better.

  • Year : Residual Value
  • MSRP: 100%
  • 1st year: 68%
  • 2nd year: 60%
  • 3rd year: 53%
  • 4th year: 46%
  • 5th year: 41%
  • 6th year: 36%
  • 7th year: 32%
  • 8th year: 28%
  • 9th year: 24%
  • 10th year: 22%
  • 11th year: 19%
  • 12th year: 17%

The biggest factor that we need to account for between new and used cars are the repair costs. These costs typically start after the new car warranty expires. We’ll assume the bumper to bumper warranty expires after 3 years at which time the repair bill starts rolling in.

We’ll start the repair/maintenance costs at $600/yr increasing by 15% every year, starting @ year 4. In terms of the car, we’ll pick a fairly economical car that has an MSRP of $20,000.

Year Residual Value Repair Cost
1 $13,600 0
2 $11,968 0
3 $10,531.84 0
4 $9,268.02 $600
5 $8,155.86 $690
6 $7,177.15 $793.50
7 $6,315.90 $912.53
8 $5,557.99 $1,049.40
9 $4,891.03 $1,206.81
10 $4,304.11 $1,387.84
11 $3,787.61 $1,596.01
12 $3,333.10 $1,835.41

Buying this new car every 10 years would result in a total cost of (not accounting for financing charges):

  • MSRP – residual value + repair costs
  • $20,000 – $4,304.11 + $6,640.08 = $22,335.97 (could be more if you get low-balled on your trade-in)

Buying this car once it’s 2 years old for around $13,000 (after small dealer markup) and keeping it for 5 years then buying another 2 year old car for another 5 (for a total of 10 years of driving):

  • Purchase price – residual value @ year 7 + repair costs (from years 2-7)
  • $13,000 – $6,315.90 + $2,996.03 = $9,680.13 x 2 = $19,360.26

Conclusions:

It appears that buying a used car every 5 years would be less expensive than purchasing a new car every 10 years. Of course, pretty big assumptions were made in this post so the calculations were meant to be relative.

I think the biggest issue with new cars is the massive depreciation after the first year. If you are a new car person, why not buy an “almost new” car that is one or two years old? At least that way you still get the new car feel, intact warranty, AND you don’t need to pay for the initial 30% depreciation.

If you insist of buying a new car, check out my article on car salesman negotiating tactics.

Welcome StumbleUpon Visitor! If you enjoyed this article, please take a second of your time to give it a “thumbs up”. Thanks!

photo credit: Manik.





69 Comments, Comment or Ping

  1. 1. Mun-Economics

    Good post

    Does fuel economy go down as the car ages?

  2. Nice pic.

    I’ve bought old, shite cars, moderately newish/low km cars and my last car was a brand new vehicle.

    I think a lot depends on the repairs on the older cars – my old cars had unbelievable repair and maintenance costs, so although I realize the new car is more expensive (it’s also a nicer car), I don’t think the overall cost difference has been that significant for me.

    As far as the big myth that cars depreciate X percent when you drive them off the lot or the theoretical idea that they depreciate Y percent after one year, all I can say is that a car is worth what someone is willing to pay for it AND someone else is willing to sell it for. Try standing outside a car lot one day and make offers to the new car buyers for 90 percent of what they just paid for their car and see how many people accept. As for the one-two year old car which has depreciated by 30 percent or whatever, when I’ve looked for those cars they all had incredibly high mileage or were in major accidents or didn’t have that much knocked off the price.

    I love the theory of buying a newish car “on sale” but I’m not sure if that “deal” really exists.

    Mike

  3. FP, from your experience of owning cars, which is your favorite manufacturer?

    MUN, from my experience, fuel economy does decrease with age. But I’m not a car guy and keeping up with top notch maintenance is not my thing. Oil changes every 5000kms and air filter changes every couple of years is all I really do.

  4. FT – I don’t really have a favourite manufacturer – although I tried to compare my various vehicles in terms of cost/repairs, they were so different that it was impossible. I did however see a nice black Ferrari drive down my street yesterday that looked like the Batmobile – I would say that is my favourite! :)

    FT 2 – so you don’t do most of the maintenance? That’s a big part of my expenses.

  5. I’m terrible for getting my car in the shop after the warranty period expires. I usually fix things when they break, or start squeeling (like the brakes). I do however, put snow tires on the car every season. My wife on the other hand is fanatic about keeping her car up to par. She gets the dealership to maintain the vehicle (against my will). :)

  6. 6. Mun-Economics

    I was wondering about the change in fuel economy because this will sway the favour to the new car market. Reflextive of the engine of the car but same car new and old it is comparable.

    Anyone have any understanding of effect this will have? My dad used to put the more expensive gas into are 10 year old toyota van for some reason as well. You can get that for regular though if you buy on thursday’s.

  7. I’ve read that if the manufacturer doesn’t recommend the higher grade gasoline for the specific car, the car will not use the gasoline to it’s maximum potential.

  8. I bought a 2003 Toyota RAV4 in November 2004 from a Hertz rental resale showroom and have been happy with our purchase. Not only did I get a somewhat used car — 24K on the odometer — but I only paid 17K for it.

    Last I looked, the book value was still over 12K, meaning the worst depreciation has already passed. We hope to keep the car at least another five years, saving big bucks on car payments.

  9. 9. Al

    I think a big determinant of how well a car will perform in it’s late years is how it is driven. Accelerating gently, taking the foot off the gas and coasting a bit before braking, unaggressive turns, etc can all extend the life of a car. When you buy used, you don’t know how the previous owner drove the vehicle. I bought a new sedan based on this principle, but bought a used minivan to save upfront cost.

  10. 10. arash

    An important factor that is missing here is the financing deals. I financed my new car at 0% for 60 months. Considering my ROR that means about 10% discount. That was my main incentive to buy new!

  11. 11. canabiz

    What folks sometimes forget is our harsh Canadian winters, there is no point buying a kick-ass new car and you have to put it in the garage/storage for 6 months and get a winter beater.

    I will never buy a new car as long as I live in Canada. Establish good relationships with a local mechanic and educate yourself about the basics of cars. I may be in the minority but I firmly believe that cars are designed to bring you from Point A to Point B. Nothing more, nothing less.

    My cars for the last 5 years have been Toyota Corolla 1991 and after I gave it to my dad, Toyota Camry 1993. I would rather use my disposable income for more productive things than spending on cars.

    JMO.

  12. 12. MikeG

    Hey all, a very useful FYI:

    A pdf by the CAA that estimates the TCO for a car.
    http://www.caa.ca/documents/2007-04-27_DrivingCostsBrochure2007.pdf

    Makes me want to not own a car..

  13. 13. nobleea

    canabiz,

    I agree, cars were meant to be driven. Why would you store a car during the winter? Unless it’s some exotic or collectible, but then you probably don’t care about cost.

    Here in Edmonton, I don’t know anyone who has a ‘winter beater’, so I don’t think it’s too common.

    FT, there were some pretty big assumptions in your calcs. 36 months is normal for warranties, but several manufacturers offer 48 months, and several offer 60 months. As was mentioned before, the financing (or if paying cash, the opportunity cost) should be factored in.

  14. Nob, I tried to take the middle of the road approach. Good point about the financing, maybe in another post i’ll do some calculations to account for that.

  15. 15. DAvid

    FT,
    You did not account for inflationary costs on the purchase and repair of your second vehicle. This would increase the costs somewhat. I also agree with Al, on the previous user being a big factor in the repair bill..

    DAvid

  16. 16. Jim Merchant

    Don’t you have to factor in the Tax on each purchase, and the difference in the cost of insurance between a new car and one that is a couple of years old?

  17. 17. Mr. T

    Another thing to think about is the low finance charges on new vehicles. vs. higher interest charges on a used vehicle.

    Do you have the time or patience to put your used car in the shop a few times per year for repairs? Sometimes both job and personal life doesn’t allow you much time to deal with this.

    If you are buying a truck or SUV newer techologies might save fuel, and as fuel increases newer techology could also help you save $$$.

    In saying all that I”m not dismissing the fact that buying a used vehicle can save you money, and there are good deals out there. It’s just something that I think about whenever I buy a vehicle.

  18. Does anyone know the average financing rate for used vehicles relative to new ones?

  19. 19. nobleea

    from a bank i think the best you could get would be in the low 6% range (more likely from a credit union). You could always use a LOC and then you’d be paying prime. Otherwise, bank rates would be in the 7-9% range (essentially a personal loan).

  20. I definitely think you’re right, regardless of what you estimate for the number. Personally I always drive cars that are a few years old. My current vehicle is 8 years only and I have maybe $200-400 of repairs per year. I think your repair estimation could even be lower.

  21. what if you can drive your new car for more than 10 years? suppose you keep it 2 years extra years, do the 2 values intersect?

  22. 22. Trent Hamm

    I think buying a 2-3 year old car and driving it for more than 5 years is the best route. I actually bought my current vehicle – a 1997 – in 2002 and am still driving it. I intend to keep driving it for a while, too.

  23. 23. Tim

    My own personal experience is that by selectively buying high quality Japanese used cars (Honda is the best), you can get a used car every ten years or more and save even more in gas, repair, maintenance, and resale.
    The initial purchase price will be higher than American cars due to the market demand for quality, but long term savings will more than compensate.

  24. 24. DAvid

    Further to my breakfast comment, if you allow for inflationary increases, based on your numbers (and I don’t necessarily agree with your first year depreciation rates), the difference is less that 8.5%. If the first two years depreciation equal 30%, and you buy the two year old car for $14,000 (70% of the original price) instead of $13,000 (65% of the original price), it becomes a wash — the new car is about the same cost as the old. Plus, since I know the care the car has received, I am more satisfied to plan to keep it longer.

    Factor in warranty, 0% interest deals, the ‘free’ tank of gas, and the ability to get EXACTLY what I want, would I pay 8.5% or less of a premium for the new car? Clearly, yes!

    DAvid

  25. What I really like in a car is a machine that does not need a lot of expensive maintenance. sure you might buy a 2 year old car at a very cheap price. But if your car brakes and you have to be at the mercy of those greedy auto repair places, you will be better off buying new cars every so often.. Once again, quality should be integrated alongside with quantity in order to come up to the decision..

  26. 26. JR

    For me and this has been my pratice for the past 20-years, it has to be the 8-10 year old jalopy. small to mid sized, probably previously owned or driven by a retiree or lady driven, and costing no more than $2500. I will keep it 3-5 years, spend around $1000 during that period on this and that, then sell it for $1000 or junk yard scrap.

    The older the vehicle the more likely that only third party liability insurance is needed. At present we have two such and the insurance is really cheap.

    I mage is not important, you can laugh all you want, its me that has the last laugh, while the rest of the universe spends or wastes money on metal.

    No need to worry about my vehicles depreciating

  27. 27. The Reverend

    Don’t be fooled by 0% financing offers. They’re almost always priced higher than the cash price, so the financing isn’t actually at 0%.

  28. 28. Sarlock

    A lot depends on the value you place on the intangible benefits of owning a new car vs. an older car. For myself, I place a value on having a reliable vehicle that won’t break down when it’s -40 out and I’m 20 miles from the nearest town. Especially with a 2 year old in the back seat.

    I own a 2002 Honda Accord that I purchased new for $25,000 (at 2.9% financing for 60 mos). I can probably sell it now for about $10,000-$12,000 since it’s in good shape with low mileage (80k). For a capital cost of $13-15,000, I’ve had a very reliable vehicle with no repairs required to date (knock on wood) for nearly 6 years. That’s an annual capital cost of $2,500 ($200/mo) which is a fairly good amortization rate. I will likely have the car for another 3-5 years yet, so the cost will continue to smooth out over time. The value of a vehicle depends a lot on the vehicle itself… some vehicles depreciate at a much more rapid rate than others do. Select a good solid vehicle with a good resale value and buying new vs. used becomes almost a wash… and the small premium I paid more than makes up for itself with the increased safety and reliability of a new vehicle.

  29. 29. Cannon_fodder

    I’ve owned only 2 cars in 21 years. I bought a brand new Honda Accord in 1987 and sold it in 1997 to a friend of the family. In 1997 I leased a 3 year old BMW 3 Series for 3 years and then bought it out when the lease terminated. It has 275k on it, has rust, some things don’t work anymore and it probably isn’t worth more than $2k – but to me it is the best $2k car out there. Perhaps if I had have invested in annual rustproofing the rust problem would be minimal – it is the worst thing about the vehicle (my wife is embarrassed to drive it).

    My next purchase would probably be a 3 year old car that still has 1 year of manufacturer warranty. It’s nice to have someone else suffer the largest depreciation while also still having a little protection for major problems.

  30. I totally understand that this is not an option for a lot of people… but I ditched my car, period, about 8 years ago. Biking, skytrain, taxis, walking (I can walk to work), public transit — took a bit of adjustment, but as you can imagine I’ve saved HUGE money, reduced my stress (no more looking for parking! no more unexpected repairs!) and there’s a ‘feel good’ factor regarding the environment.
    Again, I realize it’s not for everyone. I’m just sayin’ :)

  31. I would rather buy an 1 or 2yr old car than a new one…

  32. 32. Mike B

    I am in the boat of buying used japanese cars like a Honda or Toyota. Also try to buy from someone that can prove maintenance on the vehicle, and if it had undercoating done each year since new. Also once you own it, getting it checked out each year and changing all of the fluids in the car like the tranny fluid, and antifreeze really helps, and getting the timing belt on the Honda every 100,000km. Preventive maintenance can save you alot in the long run. If you are running antifreeze in your car that is 10 years old it is all gritty and eating away at the gaskets and such. I will not borrow for a depreciating asset like a car. When you buy that new car you end up getting full insurance, and it cost a premium. With my used cars I just get liability because it’s an older cheaper car and nobody will want to steal it. Also you don’t have to be upset if someone scratches it either, or put a little dent in it.

  33. 33. shy guy

    It is really cheap??
    Hohohoho..
    I don’t think I can afford to buy a new car…

  34. 34. Taylor

    Great article! Have you heard of Dave Ramsey?

  35. Great post as usual FT
    Looking at the car situation (and being someone who buys and sells for a hobby) I find that there are far too many variables to account for in order to make an accurate assumption.
    Sure we can pick averages on repairs, but even then the reasons of why that part of the car broke are an X factor.
    If we look at the predictable constants (or close to) like depreciation, cost and mileage (because a car today uses much less gas then a car 5 years ago (depending) where do we end up?
    If I were to guess it would be with the used car.
    It might also be worth buying a $5,000 car and then drive it for 2-3 years until you sell it again for 4 to 5 thousand. That works out to fairly cheap driving. But the risk of course is buying a lemon.
    Hint: don’t buy a lemon ;)

  36. 37. Todd

    My strategy is to never buy a car that I don’t think will run long after the financing period. I buy from the top of the reliability rankings (i.e. Honda and Toyota) and I drive a lot of miles on them. I think it was in the book “The Millionaire Next Door” where I saw the advice of buying a used car, and driving it for 10 years. Five minutes of math on the back of a paper napkin will show you the financial folly of trading cars every 5 years.

  37. 38. Gates VP

    Hey FT;

    The reader mail suggested that his new car had a 7 year warranty, not 4 as suggested by your top chart. I also think that you’re way under on your estimates for car repairs.

    Based on the CAA brochure, 20k per year would cost you an average of $800 in tires and repairs. Think of it this way. New tires cost $600-800 dollars and they last an average of 2-3 years. Bumper-to-bumper warranties don’t cover tires, but in year 3 of whatever program you’re one, you’re going to spend $600 on those tires. And then there are oil changes, belt replacements, etc. Those are also not typically warrantied and they need to be done in years 4 & 8 (or 5 &10)

    I’m going to follow on DAvid’s comment and say that it’s really personal preference, much like the rent vs. buy decision for homes. If you’re buying a new car with plans to “drive it until it dies”, then it’s likely that this experience will be similar in overall price to buying an equivalently featured
    and functional used car. (Apples to Apples right?)

    Personally, I’m with Nancy here. I don’t own a car. I make 75k / year in the US mid-west (over the twice the median salary for the region) and I don’t own a car. My grocery store, gym, coffee shop, etc are all less than 1 mile away (15 minute walk). My office is always less than 30 minutes walk away (it’s 10 right now) I’ve done this in 3 cities: Winnipeg, Edmonton and now KC.

    I know that this doesn’t scale for everybody, but it’s worth considering the costs of being being unable to live without a car. (very common here in KC) Many people lament the cost of their car and the impending repairs despite making all kinds of decisions that force them to live a car-driven existence.

    It’s all a big tradeoff, so of course, YMMV :)

  38. 39. DAvid

    GatesVP,
    I believe FT was trying to capture the differential expenses (mostly repairs) between the two vehicles, so expendables (oil, brakes, etc) would not be included in the calculation.

    I also am having difficulty balancing the depreciation numbers quoted, as all the purchases would be retail pricing, while sales (once used) are wholesale. Thus a new car might depreciate from $20,000 to $14,000 in the first year or two (retail price to wholesale), but the next purchaser will not buy it for $14,000. Therefore, should we compare retail to retail in this instance, rather than the actual out of pocket ‘loss’?

    DAvid

  39. 40. paulette

    I rather buy a new car than to buy a cheap junk car. It will be less hassle and less effort for one to do in terms of convenience.

  40. 41. MikeG

    @FT
    The depreciation of a new car doesn’t actually exist until you sell or you’re in an accident (thanks to those thieves in the insurance industry). What if you buy a new car and keep it for 10 yrs (25k kms a year)? Though your depreciation is 78%, you’ve only averaged 7.8% per year right?

    Me and the wife are looking at a replacement vehicle for our 1990 prelude (300,000kms!) It only needs new brakes, but what it also needs is safety! ( the prelude doesn’t have airbags, crumplezones etc etc.)

    I am practically living car free, but my wife requires one for her business, she visits clients at her home…

    -MikeG

  41. 42. CS

    Take advantage of the higher depreciation on North American vehicles. We bought ours two years old with below average miles for
    $14,700. It was over $33,000 new. The Japanese typically make a
    better vehicle hence the lower depreciation. But if you do the research
    you can find some good NA vehicles at a decent price.

  42. 43. JJVA

    I’ve kept my cars for at least 10 years, buying one in 1975, 1985 and 1995. I’m not sure I trust that a car being sold after two years was well cared for. Maybe yes, maybe no.

    However, notwithstanding my prior practice, I really don’t think you can buy a two year old car for only 60% or the original cost. Not from a dealer and not from an owner. Therefore, if I’m right, your calculations won’t hold up.

  43. 44. Gates VP

    I’m going to echo JJVA‘s comments. Getting a 2-year old car at 60% of the original sale price sounds pretty difficult. Maybe at 60% of the MSRP, but then we kind of wreck the comparison there.

    Are there really even a lot of two year old cars on the market? Most people take out 3-5 year loans to pay for their cars. They typically want to pay off the car before moving on (logical or not). The rule about a new car losing 40% of its value in the first two years is also very well known, so who would want to sell their car unless they had to or they didn’t care about the money?

    And honestly, I think that may explain the depreciation in the first two years. Who really wants to sell their two-year old car? The only people who would regularly sell a two-year old car are likely the people who really need to get rid of the car (say for debt issues) or people who drive fleet vehicles (which are seriously depreciated).

    If I bought a new car tomorrow for 20k, I wouldn’t turn around and sell it for 12k in 2010 unless I really needed a different vehicle (family van?) or I’d really wrecked that car. If the new car was worth 20k to me, then whatever I have in 2010 is likely worth more than 12k.

    Fun note: ran a few quick searches on AutoTrader. The # of 2005-2006s for sale was about twice as much as the # of 2007-2008s. Maybe it’s just bad data, but it looks like the supply of 2-year old cars is quite a bit lower.

  44. 45. tom

    You did not include ‘cost of financing’. Generally, when you get a new car loan the interest rate is far less that the rate you pay on a used car loan. Changes everything. If you are a cash buyer, good job!

  45. I gotta agree with Gates – the idea that cars lose a significant amount of their value in the first year or two is a bit of a fallacy because you can’t actually buy them. Most of them have very high mileage or have been in a major car wreck.

  46. 47. Sanjay

    Don’t Understand. You worked hard on Math numbers. But forgot one simple calculation of “Cost Per Year”. I will show you how:

    * 10 years Cost Per Year For New Car = Cost /10
    = $22,335.97/10
    = $ 2,233.59 Per Year Cost To You

    * 5 Years Cost Per Year For Two Year Used Car = Total Cost/5
    = $19,360.26 /5
    = $ 3,872.05 Per Year Cost To You

    SO, Used Car will Cost you WHOPPING 73% MORE Per Year Than New Car.

    I don’t understand why you forgot this simple math???

  47. Sanjay, perhaps I wasn’t clear in the article. The $19.3k total for driving used cars is for driving 2 cars for a total of 10 years. So it’s 19.3k divided by 10 years not 5.

  48. 49. Sanjay

    Thanks for your clarification. Yes Indeed! It was not very clear in the article.

  49. I always buy new and drive them until they die. I don’t like the idea of buying a 3-4 year old car. You don’t know the reasons the person is selling. The car could have all kinds of issues that may not be evident until you have driven the car for a while. I have seen several of my friends get taken buying used.

    Your numbers seem a little high on the repair work. I have spend less then $4000 on my truck for all maintence over it’s 13 year life. Gas on the other hand is too astronomical to even type.

    Overall it just comes down to personal preference. My wife has had her car for 8 years and she really wants a new one. Some people just need a change more often then others.

  50. 51. Fred D

    I’m convinced that buying new can be as cheap or cheaper than used. It has to be a model that has low depreciation, however, and bought when the timing is right.

    I buy new Hondas only when I can get them at or below invoice, combined with low interest financing that AHFC occasionally offers. Most Honda models have a far flatter depreciation curve than domestics — meaning a car that is half worn out generally sells for half of purchase price new.

    I bought a 2003 Civic in Sept 03 for $2000 under MSRP plus 2.9% financing. It cost $15,400. I recently have been in the market for a small (used) car for my daughter, and have found that used Civics of this vintage command about $10,000. That works out to $1,000 per year in depreciation.

  51. 53. MoneySheep

    When buying a used car, one might want to take into consideration the condition the car had been driven. If I know the used car had been driven “gently” I might buy it.

    Anyway, last time I bought my car, I looked through local newspapers, dealers website, etc, and use a model that had 10 years of published data as a reference and plot the asking prices and trade-in prices. So these are actual market data. See this chart:

    http://w3.spancity.com/_temp/cars2_depr_price.pdf

    FT, if you think this is useful, you might want to download and save it for your blog. This link is only temporary.

  52. Great calculations. I personally prefer to purchase a new car every 3 years because the re-sale value is still rather high depending on the car purchased and on the condition it is left in.
    For old cars every 5 years should be a perfect amount of time to sell and buy a new car because the car has had a long life and may have too many repairs or problems depending on the condition.

    These are just my views, Good post, keep up the great work!

  53. 55. Todd A

    Neither … buy a used car every 10 years. Oh yeah, make sure you buy a GOOD car, not something that dwells at the bottom of the reliability rankings (regardless of how sporty it is). And, I can’t take credit for this idea, I read the “used car, drive it 10 years” theory in the book, “The Millionaire Next Door”.

  54. 56. Mike W

    Ok here is what I have seen in my experience with cars. I have never sold a car after 1-2 years (after purchasing brand new) but I wouldnt doubt that the car drops 20-30% after that time period. But do you really think the car dealership is going to sell you that same car for 20-30% less and break even on the price? No way….they are going to sell it for 10-15% less. So lets look at the numbers.

    Lets say you want to buy a compact 2008 for 15K if you take off the 10-15% that means you can get a 2007 for 12,750 – 13,500. Now we have to account for the sale of the car. Lets say these two people who bought the 2008 and 2007 decide to sell the car 5 years later (same date because they bought both cars at the same time)….this number would be a little harder to figure out exactly (so many variables) and Im no soothsayer…..but I would say all other things being equal….a 2008 will sell for more than a 2007. So that closer the gap even further.

    To me there is something to be said knowing that YOU had total control of that car from day 1. If someone traded in a car after 1 year that has to be something going on that they know about that the mechanic didnt catch in that 30 minutes to one hour that he had to check it out on the day of the trade in.

  55. 57. JJ

    I have been using an old used car for 6 years. Based on my personal experience, I would say, if you have an average luck (get huge repair bill for engine or transmission, etc), used car will be significantly cost effective – way more than the number in this post.

    The purchase price of my old car is $4500. My average annual repair + maintenance cost such as oil change is $600. The expense is each year is not even, one year could be $1500 (such as change tires/brakes), next year could be only $300.

    So the total cost of 6-year ownership is about $8000 excluding insurance. Not mention there are still some residual value.

    Things I want to point out about the post is,

    1. New car in warranty also has maintenance cost (such as oil change or some other consumable parts)

    2. New car’s insurance cost will be significantly higher. A low value used car does not need to buy full-coverage insurance, which usually save a lot money per year.

    3. People who buy really old car, don’t really spend huge money for repairing, why? They don’t go to expensive dealership. They usually use cheaper mechanics.

    4. Many people buy used cars from owner directly, that usually saves a few hundred dollars or even $1000+.

    5. Above points are all about money. But for many people, driving a new car is definitely worthwhile – enjoyable nice car, less headache for car repair, etc.

    6. Depends on if you are lucky. Used car could cost a lot as I mention earlier. Some people buy a $3000 old car, but have to donate it after a few months because it the repair cost is too high.

  56. 59. bat

    used car – 10k
    new car – 20k
    driving your dream car – priceless

  57. 61. American

    I disagree with the 32% drop the first year. Should be more like 20%. This changes the equation considerably (and the result). Plus the car insurance should change with age. Who is going to pay full coverage for collision on a car that’s only worth $5k?

  58. 63. Chris

    Don’t forget lots of people use financing to buy the new car… buying used is sometimes about paying with cash especially if you want to get a better deal in a private sale. If you know what to look for you can pick up really nice used cars for 5000 bucks and they can last.

    Then learn to fix the simple things and save the big shet for the mechanics and you will save 15000 bucks. I think buying cars that between 5-7 years old give you the best price point… but you will never know that new car smell.

    Note- The first owner of my jeep bought it for 33,000… the second owner payed 15,000 3.5 years later. 1.5 years later I bought it for 10,500.. inspection done.. only needs fluid changed.

  59. 64. Richard

    Just a thought, why did you say new every 10 or used every 5, why not compare the annual cost of buying a used car when the depreciation has been paid by original owner. Anyone who thinks a 2 year old accord can miss THAT MUCH maintenance, dealer or otherwise, is missing the boat. I am going out on a limb, and say EVERYONE gets their oil changed (yes you all have your story about your idiot neighbor that forgot to do it for 6 years, but in general, people change oil!) A 2 year old honda will not need much more than that! So take that honda bought 2 years old, and drive it 8 years, and compare THAT to your buy new keep 10, this will make a real good case for buying a used car. I personally am just about ready to get rid of my accord, bought 2 years old, going on 8 I’ve had it, MTC is next to non-existant, 2 sets of brakes front and rear (2nd rear only becuase caliper ceased), and an engine coolant temperature sensor, 2 sets of tires, and oil & tranny fluid change, thats all that car asked for in 100k miles!

  60. 65. Richard

    One more thought! I keep my records all written down, inspections, oil/filter purchases, tranny fluid, brake parts, and its running me on avg right around $250/yr mtc (doing work myself obviously). At time of sale, this car will cost me $1500/yr depreciation, pretty good for a model that between 0-2 years is about $4500/yr, and 0-4 is about $3500/yr. So my math tells me, i’m running an ex-l model for half what buying a new one and trading in costs. Every scenario where I buy new and keep X years (unless X=25 maybe), says used is cheaper!

  61. 66. Moti

    I own a 97 lexus es300. I bought it in November 2011 for 3,500 and it had 180,000 km on it. It came with all service records and I am handy so I have made small repairs to it as required (sensor, some lubrication, oil changes). It is not painless to maintain but its reliable. Its a v6 but I think thats part of the reason why its more reliable than a smaller car of the same age.

    Personally, I hate car payments. they are like golden cages that suck your money/value. But i did buy a rather old car with medium range fuel economy.
    Its a strong car, and starts up in -25 with no issues, everyday, hasnt broken down and has lots of toys.

    Basically, though, its hard to find a good used car, and most people dont put in the effort. But the “myth” of a new car being a safe car is overblown. A used car is pefectly fine if its a good make.

    Being a bit wiser, I’d buy a 2004/2005 toyota corolla or a mazada3 today at about 5-6k and drive it into the ground.

    While a car is a very personal choice, basically for 8K or under you CAN get a great compact that will do your daily commuter runs/chores for 5-8 years. Choose something dull, with 4 doors. Insurance is lower then too. If its a good brand and you keep up with the maintenance schedule (you should for ANY car you have) it should make alot of financial sense!

    Get your car amortization to $100/month. Its possible…but its not flashy! lol

  62. 67. Moti

    Now i feel a bit silly. Basically Chris wrote the same thing so much better a few comments up, thanks Chris! I totally agree. 5-7 years and 5k is a sweet spot!

  63. 68. David

    Yeah but what about the fact that my new car will be financed at 0% for 84 months and a used car would be more around 5 %… I believe that if you buy a new car from the year before at the good moment or buy a demo and take care of your car for up to 10 years , it will be the cheapest way to own a car.

  64. 69. Beth McDonald

    I think new cars are a better option, depreciation be damned. There’s an infographic that actually shows off all that stuff.

    Take look at it here: http://blog.unhaggle.com/new-used-car-buy-infographic/

    Trackbacks

Reply to “New Car every 10 years or Used Car every 5?”

Subscribe without commenting



Get the Latest

      

Money Tips Newsletter

Premium Sponsors



Recent Comments

  • Phil: “Cooper uses “comparable properties that have recently sold in my neighbourhood, No wonder that in true...
  • My Own Advisor: Thanks for the mention FT! Looking forward to reading more updates from those aspiring to be where...
  • SST: Great to see all the interest in Private Equity! To address everything in one fell swoop, there are basically...
  • Robb Engen: Thanks for the mention, FT. Have a great weekend!
  • Michael James: I wasn’t sure how people would take my momentum post. Many people’s comments about the...
  • Mike: I’m just back from a brief visit to our place on Kissimmee’s westside. I can tell you that, at...
  • Alan W.: Thanks for including me this week, I really think it would be better to just have trading accounts and run...
  • Pierre Fregeau: Gary, I don’t know which part of Florida, you bought your property in ’09, so I will...
  • Gary: The house we bought in 09 has now doubled in value. You need to hit the bottom like we did. I don’t think...
  • Pierre Fregeau: Continuation of post 208 For those of you worrying about the value of the Canadian Dollar. There was...
 css.php