Yes! Buying a New Car Makes More Sense than Buying Used

Yes! Buying a New Car Makes More Sense than Buying Used

According to Ben Le Fort, buying a new car is a really bad idea. He calculates that if you make the median salary, financing, depreciation, gas, maintenance, and insurance cost 25% of your after-tax income.

Which Cars Should We Analyze?

– Best compact SUV: Honda CRV – Best minivan: Honda Odyssey – Best subcompact SUV: Hyundai Kona – Best 2-row SUV: Nissan Murano – Best 3-row SUV: Kia Sorento – Best subcompact car: Honda Fit – Best compact car: Kia Soul – Best midsize car: Toyota Camry hybrid – Best large car: Toyota Avalon hybrid

– You get to choose the make, model, trim, options, colors, etc. exactly the way you want them. – You get a brand-new vehicle and don’t inherit anyone else’s problems (e.g., no flood-rescue cars).

Buying a New Car Is Really Expensive at First, but Over Time…

Full Cost of Ownership The true cost to own includes maintenance, repairs, taxes & fees, financing, depreciation and fuel.

Buying a Used Car Isn’t the Slam-Dunk Financial Case People Believe

Using the second 5-year period without adjusting the financing or depreciation costs, we get an average annual cost of $6417 for the CRV. Similarly, we get $5686 for the Soul and $5796 for the Camry.

In almost all cases, leasing makes little financial sense, even if you drive relatively few miles (leases usually allow only 12,000 miles a year). 

Leasing a New Car Makes Little Sense, Unless…

– Car makers change their models from year to year, sometimes a lot. Thus, owning a 2014 model for 5 years starting now wouldn’t be exactly the same as owning the 2019 model from 2024 to 2029.

Caveats

The  method gives you a reasonable handle on how to think about the cost of buying a new vehicle and driving it for 10 years vs. the cost of buying a 5-year-old model and keeping it for 5 years until it reaches the same 10-year age.

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