Once you have an idea of the kind of car you want and roughly how much you’re looking to spend, the next question might be: new or used? A used car will often cost less than a new one. But a new car may be more reliable and have fewer unexpected repairs that can impact your schedule and budget. For this example, let’s take a look at two cars- one new, and one used, and then compare and contrast all the variable expenses you might encounter with each car over the next five years – like, the cost of the car, the cost to finance it, the cost of gas, insurance, and finally maintenance and repairs. But first, let’s start with the cost of the actual car. So let’s say we have a brand new car with a sticker price of nineteen thousand dollars, and we have a used car that is the same make and model as the other one, just five years older that we found for sale by its owner for ten thousand dollars.
Now you may be wondering why is the used car so much cheaper than the new car? There are a couple of factors- one is that the new car comes with a warranty which will cover some of your repair expenses, but the biggest factor in the price difference is depreciation. As a car gets older, it loses value, that is, it depreciates. So a new car that cost nineteen thousand dollars, after five years might only be worth about ten thousand dollars even if you’ve kept it in good condition. And the same car might only be worth about five thousand dollars in another five years. As you can see, depreciation doesn’t happen at a constant rate. Sure, it’s almost always going to go down, but a new car loses value fastest the moment you buy it, but then slows to a more constant rate after the first few years. But when you purchase a used car, yo u’ll likely get a higher interest rate than when you buy a new car.