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Buying a Car Used Can Save You Thousands

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B uying a car used can save you thousands! Who doesn’t want that brand spanking new car? You’ll be shocked to see how much money you can save by making the choice to buy a used car instead.

One thing you’ve got to keep in mind is that a car is considered an asset that loses value over time for the most part. Well, that’s unless you have one of those super rare beauty’s that you never drive around. Realistically, the average person buys regular cars that typically lose it’s value and that’s called depreciation.

How much does a car depreciate over time? 

Did you know that your brand new car starts to lose value as soon as you drive it off the lot! According to Car Fax, it’ll most likely lose 10% of it’s value during the first month as you happily drive it off the lot!

It’ll continue to depreciate and after the first 12 months the value will drop by 20%. It’ll keep losing it’s value year after year by 10%.

Think twice before deciding to buy a new car.

You can find used cars in excellent condition with much of the depreciation already taken place so you can get it at a fraction of the original cost. Check out Edmunds to check your car appraisal and to look for used cars.

First Year – New car can lose 20% to 30% of it’s value

By the Fifth Year – New car can lose as much as 60% of it’s original sticker price

How will car depreciation affect me?

Let’s look at a scenario with our fictional character Joe who landed a good paying job out of college. He’s a bachelor and living the prime of his life. Joe always wanted a smoking hot mustang so one day he went out and decided to get one.

First Scenario – Joe Got a New Car

Joe went to a dealership and found a nice looking one mustang for $40,000. It seemed like a lot of money but he figured if he finances it, he can certainly afford the monthly payments  He saved a couple thousand already so he put that money towards his down payment, financing fees, taxes, etc. 

Fast forward up to 5 years later, Joe met his wife and now is happily married. Joe’s wife Kate also has a small car. They’ve been managing just fine with two small vehicles. One day, Joe and Kate decide to have children. It turns out Kate is pregnant with twins and about to give birth in a few months! They decide that their two small cars just won’t cut it especially with twins on the way.

Joe and Kate decide that they need a new car preferably a much larger minivan or SUV. Joe finally paid off his mustang. He loves his car but they need a new vehicle plus some cash to start his new family.

JOE’S 2014 MUSTANG$40,000
4.21% FINANCING INTEREST$4,427
FINANCING FEES, TAXES, DOCUMENTATION, ETC.$1,800
TOTAL PAID IN 5 YEARS – 2019$46,227

Since Joe and Kate needed a new car, they decided to get a trade in value estimate for both their cars. Kate’s car had a trade in value of $1,800 and Joe’s car had a value of $16,000. Unfortunately, they both decided to sacrifice Joe’s beloved mustang due to the higher trade in value. Let’s calculate how much Joe lost in 5 years once he trades in his new car.

TOTAL JOE PAID FOR HIS MUSTANG + INTEREST + FEES$46,227
TRADE IN VALUE IN 2019$16,000
TOTAL LOSS IN 5 YEARS-$30,227

Can you believe that Joe lost roughly $30K in 5 years? That’s an equivalent of throwing $6,045 a year down the trash just to drive the new car. Now, let’s see how Joe’s situation turns out if he bought a used car instead.

Second Scenario – Joe Got a Used Car

What if Joe first bought a used mustang and ended up trading that in? For instance, let’s say Joe bought a used mustang for $18,000 with 65,000 miles on it instead of the brand new one for $40,000. 5 years later when it came time to trade in that car, how much would he lose with the used car vs. the new car?

JOE’S USED MUSTANG WITH 65,000 MILES (ALL FEES INC.)$18,000
TRADE IN VALUE AFTER 5 YEARS OF USE WITH 130,000 MILES$11,000
TOTAL LOSS IN 5 YEARS-$7,000

Ultimately, Joe would save roughly $23,000 if he buys a used car rather than a new car. Depreciation is REAL and it hits hard, especially with new vehicles.

TOTAL LOSS IN 5 YEARS – JOE’S NEW MUSTANG$30,227
TOTAL LOSS IN 5 YEARS – JOE’S USED MUSTANG $7,000
TOTAL SAVED IF JOE BUYS THE USED MUSTANG$23,000

Saving $23,000 in 5 years sounds pretty good to me. That money can easily go towards getting out of debt, savings, or retirement accounts. It’s easy to lose track of how much we’re TRULY spending when buying new cars over used cars.

Another aspect to keep in mind when buying new cars are financing fees. Let’s be real here, a majority of people do not have $25,000-$60,000 lying around. Most people will have to finance their new cars.

Not only do you have to pay a hefty amount for a new car, there’s interest tacked on for financing plus loan fees. This can tack on thousands of dollars more to owning a new car.

Do you want to find out how much your car would be appraised for? Go to Edmunds-Appraisal Tool to find out how much it’s worth if you’re deciding on selling it.

Financing Burden

Financing a car whether it’s new or used can significantly add on more costs to owning a car. When taking out a loan for a car, there are certain major factors to consider.

  • Loan origination fees
  • Interest rates from 2%-15.24% (even higher)
  • Need full coverage car insurance

Who doesn’t want a nice and brand new car? Are the extra factors of depreciation and financing all worth it in the long run? I don’t think so!

I had a co-worker who financed a brand new Nissan Maxima. She was paying $500-$600 a month for the car and an extra $350 every month for the full coverage insurance. That is almost a whopping $1,000 a month! Just for a car that’s depreciating in value! 

You can be wasting a lot of extra money on unnecessary costs when financing a car. The best choice would be to buy a used car in full so that way, you can avoid all the extra fees that comes along with financing.

Is Buying a Used Car Worth It?

Buying A Car Used Can Save You Thousands - My Financial Hill

When we look at Joe’s comparison from buying a new car vs. a used car. He would save an upwards of $23,000 in 5 years if he were to choose the used mustang. That’s a lot of money I’d say. New cars can depreciate nearly 60% after 5 years.

Not only can you use a lot more money from depreciation, you can waste even more by financing a car.

Buying a fully paid for used car is the way to go!

Buying used doesn’t mean you have to get a broken down car. There are TONS of used cars out there that are in perfectly excellent condition and much more affordable. When I bought my used car for $14,000, it was 2010 and already had about 40,000 miles on it. Yes, I financed it because I had no choice at the time. Now it’s fully paid off now and I will not finance another vehicle. My used car is still running great! In the 5 years I had the car all I did were oil changes, 2 new tires, and a tune up. That’s it!

Another great part about buying a used car is that although it will depreciate over time, the majority of the decrease in value already took place. So by the time you buy it, the price should be a lot more reasonable with all the depreciation that’s taken place. You could get more bang for your buck.

What to Consider When Buying Used

When buying used cars, there are other precautions that can be taken to make sure that you will not end up with a lemon. 

When purchasing your used car at a dealership, most of the time they will provide you with a carfax report. You can also have the used car inspected prior to purchase. Most often, test driving will also be allowed.

Also, if you go to a reputable used car dealership, they will fix any minor repairs that you uncover in the allotted time frame. One thing to keep in mind when it comes down to the actual purchase of the car is that you can do quick research on the make and model of the car on Kelley Blue Book. If the dealership marked up the price significantly, there is room to negotiate if you can find comparable prices of what the car should actually cost. 

Buying a used car from a private seller will in most cases be sold as is and they will not fix anything for you once you drive it off. However, the price of the used car will usually be less than dealerships. 

Buying a used car from a dealership may offer you better protections than buying from a private seller.

Takeaway

Most of us rely on cars. It helps us get to work, grocery shopping, picking up the kids, run errands, and so much more. A car can be a blessing or a financial burden.

Don’t let buying a car seep more money out your pockets when you don’t have to.

Buying a used car over a new one can save you thousands. Plus, it may be better to avoid financing any car. If you can, save up and pay for the car in cash. There’s lots of reliable used cars out there which can last you 10+ years.

And remember, money saved is money earned. Don’t give other people/companies/banks your hard earned money when it’s avoidable.

If you found this tip about saving money on cars useful, check out my other money saving tip posts.

95 Best Money Saving Tips to Start Now

How we Saved Over $500 a Month on Food and Drinks

Home Buying Tips to Save Thousands

How we Saved Over $60 a Month on Our Cellphone Bill

How We Paid Off $50,000 Within 10 Months

Did you know that getting out of debt can also be saving you hundreds of extra dollars a month. We’ve knocked out over $100,000 in 24 months using these tips from the free 5-Day Debt Free Bootcamp. Start your debt free journey with this free Debt Thermometer to begin.


About the author

Hi everyone! I'm Jina the creator and founder of My Financial Hill. I was inspired to start this blog to help others reach FINANCIAL FREEDOM after our success in paying off over $100,000 in 24 months. I want to share everything I know about the debt paying process with you all because it doesn't take huge sacrifice, working 80+ hours a week, eating rice and beans, or never traveling. I'm here to show you how to find your own groove to become DEBT FREE !

Jina 


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