Buying a used car is smart for a variety of reasons, and one of the best is that it saves you a ton of money. This is fairly obvious, right? But you might be surprised by exactly how much cash that new car is costing you. Let’s explore.
Sure, new cars are lovely, shiny things, as yet unsullied by parking lot dings and travel mug mishaps. But their values drop — precipitously — especially in the first few years of their lives.
This, friends, is known as depreciation, and it’s the surest way to kiss your hard-earned money goodbye, short of setting it aflame.
Why buy a new car when, for 60 percent less, you can pick up a five-year-old model in outstanding condition? That’s a savings of about $20,000 on average (a typical new car is $33,500 these days).
Depreciation is the surest way to kiss your hard-earned money goodbye.
If you want to avoid depreciation altogether, look for models that are around fifteen years old. By this point, most are fully depreciated — meaning that, as long as they are kept in good condition, they will maintain their value indefinitely.
Of course, older cars need repairs from time to time, but you can keep a good used car on the road for decades before its maintenance tab will ever add up to the hit its original owner took from depreciation. And if you’re patient enough, you may find yourself driving a classic that actually begins to rise in value.
If you’re patient enough, you may find yourself with a classic that’s rising in value.
Avoiding depreciation isn’t the only way you save money when buying used.
If you finance your purchase, as most shoppers do, you’ll also avoid paying interest on the additional $20,000 the average new car costs. Over the course of a typical 60 month loan, this keeps an extra $3000 in your pocket (at current rates of ~3%).
As a final bonus, you’ll also save a similar percentage on your car insurance bill, because your payment is directly related to the car’s value. So instead of paying $150 per month, for example, you’d pay just $60. That’s another grand saved every year.
Let’s add it up, shall we?
Keep the car for five years, and you just saved nearly thirty large. Not bad, eh?
Additional posts in the Why Buy Used series…
About Mark HolthoffBefore joining Klipnik, Mark spent eight years at Edmunds.com developing and running their Live Advice and Consumer Reviews programs. His first car was a 1974 Triumph TR6 in Sapphire Blue, which he bought with his life savings of $2000 and kept running with a combination of spare change, duct tape and dumb luck.
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