Choosing between buying a new or a preowned car is a complicated endeavor. However, in terms of total cost of ownership—and putting emotions aside—purchasing a preowned car is almost always the better financial decision. The reason: depreciation. Typically, a vehicle will depreciate around 40% in the first 3 years.
Edmunds.com ran a test to compare the five-year total ownership costs of buying a $20,000 brand new car and driving it 12,000 miles annually vs. buying a pre-owned version for $10,000. The total cost for the new car ended up being $32, 388 and $18,390 for the pre-owned vehicle
Take a look at the breakdown:
| New Car | |
| Down Payment | $3,000 |
| Monthly Payment | $21888 ($608 per month) |
| Insurance | $5,700 |
| Maintenance & Repairs | $1,100 |
| DMV Fees | $1,000 |
| Total | $32,388 |
| Preowned Car | |
| Down Payment | $2,000 |
| Monthly Payment | $10,260 ($285 per month) |
| Insurance | $3,430 |
| Maintenance & Repairs | $2,700 |
| DMV Fees | $650 |
| Total | $18,390 |
As you can see, a pre-owned car with a lower sticker price in turn means lower financing costs lower registration fees, lower insurance premiums and, because it has already taken its largest hit in depreciation, it depreciates less– and more slowly.
What about repairs for a pre-owned car!?
There are of course fears with purchasing a pre-owned car. Typically these fears are the unforeseen headaches of repairs. More specifically, the costs of repairs. But you can avoid the headache of a major repair by purchasing an extended auto warranty. Even with the added costs of an extended warranty, a used car is much more affordable.
