How To Save
Money On A Car

How much money do you save if you buy a used car?

Yes, you do save money when you purchase a used car, mainly because of depreciation. The minute a new car is rolled off the lot, its values depreciates by 20% and another 10% more by the end of the first year. Within the first three years of ownership, its value would have depreciated by 40% to 50% and approximately 20% to 25% after the next 3 years. After 6 years, your new car would only be worth approximately 25% of what you paid for it. New cars depreciate the most within the first 2 years of ownership, so the older the vehicle, the less it depreciates.

Look at it this way. A $30,000 car would only be worth $15,000 after three years. If you purchased this same 3-year-old used vehicle for $15,000, after 3 years, you would be able to sell it for approximately $10,000. So here is where the savings are seen. After 3 years, you would suffer a loss of $15,000 with a new vehicle versus a loss of $5,000 with a used vehicle. That’s a difference of $10,000. The resale value of a new car after 3 years is shocking, isn’t it? So, would you rather lose $15,000 or lose $5,000?

Now I would attempt to show you how much you actually save by including Auto Insurance, Registration, Maintenance and Financing combined. Auto insurance is calculated according to how old the vehicle is, so for a new vehicle, let’s say your insurance would cost $75 a month whereas the auto insurance for a 3-year-old vehicle would be around $50 a month. That works out to a savings of $300 a year and a total of $900 for the 3 years.

Maintenance on a used vehicle would be more than a new vehicle so let’s assume a new vehicle would cost around $30 a month in maintenance and a used vehicle should cost twice the amount, a $60 per month. After 3 years, you would spend $1,080 more on repairs.

However, registration cost of a new vehicle is higher than a used vehicle, costing ~$400 on a new vehicle as opposed to a 3-year old vehicle at ~$200. Now for the financing. Most times, the interest rate for purchasing a new vehicle is less than if you were to purchase a used vehicle, so, to show the savings, I would use a 4.5% interest rate for a new vehicle and a 5.5% interest rate for a used vehicle. Although, if I used the same interest rates for the two vehicles, you would still save considerably but let’s be fair and differentiate.

Remember, the interest rate is calculated according to the remaining balance so some technicality would occur. These rates are for financing a vehicle with no down payment. For the new $30,000 vehicle, your monthly installment should work out to $892 per month for 3 years while the $15,000 3-year-old vehicle would cost around $453 per month for 3 years. After 3 years, your $30,000 would actually cost you $2,127 in interest while your $15,000 would cost you $1,306 in interest. These figures are an estimate so don’t argue about the accuracy, it is just to show the savings.

Considering all of the above, with a new vehicle, you would be spending approximately $6,661 per year while with a used vehicle, you would spend $3,849 per year, after an average depreciation of $12,576 and $5,680 respectively. For 3 years of ownership, you would save $2, 812 on average per year which works out to be a total of $8,436. So, would you rather lose $32,559 or $17,227?