May 31, 2008

Buying used cars instead of new can add up to nearly $400k

Used cars are cheaper than new cars. New cars generally depreciate 1/3 of their value in the first year. For more on depreciation see this calculator. A 2-3 year old car is still in usually going to be in very good shape and with the quality of vehicles nowadays cars should easily last 5-10 years. To me it really makes sense to buy a slightly used car instead of a new car. You get a nearly new car for 2/3 the cost and it will run just fine. Leasing a car is an even worse option than buying new or used. Leasing cars generally only useful in lowering payments so you can afford a more expensive car. But with a lease you retain no value and simply paying high rent.

If you buy 2 year old used cars instead of buying new and then drive them for 5 years you will save a significant amount of money over time. If you bought used cars instead of new then you could save $391k over a 40 year period. I showed the break down here. I assumed a 10% investment return for sake of example. Note: This is just a rough estimate, I do not account for increased maintenance costs with used cars or higher insurance premiums on new cars.

Imagine how much more comfortable you would be in retirement if you had that extra $391k in retirement. Is a slightly newer car really worth it?

More on buying used cars:

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