Typical new car depreciation curve.

Typical new car depreciation curve.

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?

Total Savings
Keep the car for five years, and you just saved nearly thirty large. Not bad, eh?


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Notable Replies

  1. Are there any good stats for the cost of repairs beyond year five of ownership? $28,000 savings sounds great, unless you have to give it to Hans to keep your wagen on the strasse. I am guessing if the repair cost data were available you would have included it.

  2. You’re right that there’s not as much comprehensive data out there on the repair and maintenance costs for older cars. I was able to find a recent Consumer Reports study of how much owners paid on average in the 10th year of ownership (i.e. for 2007 models being driven in 2017). The most was for BMWs, which set their owners back on average $1125 per year at the shop. That’s about a hundred bucks a month – or $5625 over the course of five years, which still nets you a savings of $22,375 vs. the average brand-new car.

  3. About $1,100 a year in maintenance and repair is what a 2004 Mercedes e320 wagon with 175k miles costs me. Keeping it in top shape too. A 2000 Toyota 4Runner is half of that but will cost more to buy. My experience agrees with this article completely! Those fancy dealer showrooms are designed to make you and your money part ways.

  4. Thanks for sharing these additional data points. It’s great to hear that they are in line with the Consumer Reports study. I’ll take a hundred bucks a month in maintenance any day over the many hundreds each month that most new car buyers lose in depreciation alone.

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About Mark Holthoff

Before 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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Car Buying Tips