once you have an idea of the kind of car youwant and roughly how much you're looking to spend, the next question might be: new orused? a used car will often cost less than a newone. but a new car may be more reliable and have fewer unexpected repairs that can impactyour schedule and budget. for this example, let's take a look at twocars- one new, and one used, and then compare and contrast all the variable expenses youmight encounter with each car over the next five years - like, the cost of the car, thecost to finance it, the cost of gas, insurance, and finally maintenance and repairs. but first, let�s start with the cost ofthe actual car.
so over here, let�s say we have a brandnew car with a sticker price of nineteen thousand dollars� and over here, we have a used car that isthe same make and model as the other one, just five years older that we found for saleby its owner for ten thousand dollars. now you may be wondering why is the used carso much cheaper than the new car? there are a couple of factors- one is that the new carcomes with a warranty which will cover some of your repair expenses, but the biggest factor in the price differenceis depreciation. as a car gets older, it loses value, thatis, it depreciates.
so this new car that cost nineteen thousanddollars, after five years might only be worth about ten thousand dollars even if you�vekept it in good condition. and the same car might only be worth aboutfive thousand dollars in another five years. as you can see, depreciation doesn�t happenat 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 constantrate after the first few years. if you plan on driving your car until it fallsapart, depreciation won�t matter as much because you�re not going to resell it. butif you plan on trading it in or selling it after five years, it can make a big difference.with a new car, in five years, your car might
be worth about nine thousand dollars lessthan what you initially paid. and with the used car, over five years, your car mightonly be worth five thousand dollars less. now let�s take a closer look at some otherdifferences, starting with the financing. you may be wondering if you can finance acar you buy from an individual? fortunately, you can get this kind of financing from abank or a credit union. but when you purchase a used car, you�lllikely get a higher interest rate than when you buy a new car. so, let�s say the annual percentage rate,or apr on a five-year loan for the new car is three point five percent. and the apr ona loan that you get for the used car could
be something like four percent. using an online loan calculator, you�llfind that on the new car, you�ll be paying about twenty thousand seven hundred dollarsover five years�that�s nineteen thousand dollars in principal and one thousand sevenhundred dollars in interest, with monthly payments of about three hundred fourty fivedollars. on the used car, you will pay about eleventhousand fifty dollars over five years: ten thousand dollars in principal and one thousandfifty dollars in interest with monthly payments of about one hundred eighty five dollars. so even though you have a higher interestrate on the used car, you�ll pay much less
in interest and in monthly payments becauseyour principal is much less on the used car than on your new car. next let�s compare gas mileage. let�ssay the new car gets thirty three miles per gallon and the used car gets twenty nine milesper gallon and you drive about fifteen thousand miles per year. let�s also assume that gaswill be a constant four dollars per gallon. [take this next section very slow] over five years� taking the miles driven�divided by the miles per gallon� times the price of gas per gallon� we would be spendingabout... [resume normal speed]
nine thousand one hundred dollars for gasfor the new car and about ten thousand three hundred fifty dollars for gas in the usedone. then there are insurance rates to consider.insurance rates vary based on a lot of different factors, and in looking at new versus used,the difference in the rate for you will likely be based mostly on the replacement cost ofthe car. the more valuable the car, the higher the insurance rate. so while a new car mightget you some discounts for new safety features, generally a used car that�s less valuableis going to cost less to insure. so with a new car, your insurance might costone thousand five hundred sixty dollars a year. over five years: seven thousand eighthundred dollars.
and with a used car, your insurance mightcost one thousand two hundred dollars a year, and six thousand dollars over five years. now let�s look at maintenance and repairs.this is the trickiest cost to estimate because it�s unpredictable and major repairs canhave a big impact on your budget. with a new car, major repairs may be coveredby a warranty in the first few years. so let�s estimate that over five years you spend threethousand dollars total on maintenance and repairs on the new car. now, when you buy the used car, you do havethe option of buying certified pre-owned- this will cost a bit more, but it�ll alsocome with some sort of warranty.
but for this example, let�s just stick withthe car you bought from its previous owner. the cost of regular maintenance typicallyincreases as the car ages�and so does the chance of needing a major repair. major repairscan be inconvenient too� they take time and sometimes you might have to get a rentalcar while yours is in the shop. for the used car, you might be lucky and onlyneed to spend around four thousand dollars on maintenance, but a more realistic numbermay be around six thousand dollars on the used car. so adding this up� � you�d spend a total of fourty thousandsix hundred dollars on the new car and thirty
three thousand four hundred dollars on theused car over five years. that�s a difference of about fourty thousand six hundred minusthirty three thousand four hundred� seven thousand two hundred dollars less on the usedcar. now, keep in mind, this doesn�t take intoconsideration the value still in the cars. the new car probably has a few more yearsleft in it than the used one and if you were to resell them, you�d be getting about tenthousand dollars for the new car rather than about five thousand dollars for the used car. but we�re looking at a lot of variables,after all. with certain cars and situations the new one may end up costing you less thanthe used one. and there are multiple other
things to take into consideration. a new car will probably be more reliable,with newer features and it may be safer or better for the environment. with a used caryou�ll have lower monthly payments, which could be good for your budget, but it mayalso be less reliable and you could have larger unexpected costs when it comes to repairs. by looking at your own needs and budget, anddoing the research and the math on the cars you�re interested in, you can figure outwhich is the best choice for you.
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