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Should You Purchase a New or Used Car

Should You Purchase a New or Used Car?

Should You Purchase a New or Used CarIt probably comes as no surprise that buying and driving a used car generally costs less than buying a new car, though you might be surprised at how much less. Below is a cost comparison provided in our MoneyEd Auto Finance module to help you get a feel for the cost differential between buying a new vs. used car.

Financing a New Car

New car loans are often extended for several years to decrease monthly payment amounts—but the longer the term of the loan, the more interest you will pay.  Here’s how expenses stacked up for ownership on a $20,000 new car.

At the end of the three years, here's how the totals look:

New Car Ownership — Three Year Total (3 year loan @ 6%)

 

 

 

Down Payment

 

$3,000

Monthly payment

$608 per month

$21,888

Insurance

 

$5,700

Maintenance & repairs

$1,100

DMV Fees* 

 

$1,357

TOTAL

$33,045

 

Financing a Used Car

Here’s how much a $10,000 used car costs making a $2,000 down payment and paying off the balance over three years at an 8 percent interest rate.

Over three years the totals look like this:

Used Car Ownership — Three Year Total (3 year loan @ 8%)

 

 

 

Down Payment

 

$2,000

Monthly payment

$285 per month

$10,260

Insurance (rates drop after first three years)

$3,430

Maintenance & repairs

$2,700

DMV Fees* 

$732

TOTAL

$19,122

 *Estimated state and/or local taxes, title, and registration will vary depending on state/location. Example uses 6.25% tax**, $72 registration and $35 title fees based on estimated fees in state of TX.

**Tax is a percentage of the sales price or Standard Presumptive Value. For this example, we used sales price. To check Standard Presumptive Value in TX, go here.

 
As you can see, buying a used car is significantly less than buying a new one when looking at a three-year period. At the end of the day, you need to ask yourself what matters most to you to determine which route you'd like to take. For example, is it price, new car features, value, associated costs or reliability that matters most to you? When deciding, also keep in mind that the minute you buy a new car, it depreciates by more than 20 percent when you drive it off the lot. Thus, purchasing a similar, used make and model might be a smart move.

It’s also worth noting that you might want to consider purchasing mechanical breakdown protection (extended warranties) for a used vehicle where applicable, which will impact the overall cost of a used vehicle. For more information and a quote, visit here.