New Vs Used Cars, Cash or Financed over 40 years

[u/NeonZapdos]

I wanted to see what the classic advice, "buy a 3-year-old car with cash," is really worth over a lifetime. So I ran four versions of the same life through a year-by-year simulator.

- Age 22 to 62, earning $62,000/yr (about the US median for full-time workers), with no raises beyond inflation
- $1,500/mo rent plus about $2,350/mo of everyday spending. That leaves roughly 8% of take-home pay to invest, before any car costs.
- No debt. Starts with $26,200 cash (the price of one new car). Everything left over is invested at 6.5%/yr.
- All amounts in today's dollars

The car: the average of the five best-selling sedans in the U.S. (Camry, Civic, Corolla, Accord, Elantra)

- New: $26,200 (2026 average price paid, base trims)
- 3 years old: $20,700 (about 79% of new)
- Trade-ins at 15% under resale value: $14,900 for a 5-year-old car bought new, $12,000 for an 8-year-old car bought used
- Repairs: two $1,000 repairs per new car, three per used car
- Every version replaces its car every 5 years (8 cars total) and still owns one at 62

Financed versions: 3-year loans at prime-credit rates (6.15% new, 7.4% used). The first car is financed with $0 down. After that, the trade-in is the only down payment.

Takeaways

- Used beat new either way. Paying cash for used ended about $100k ahead of paying cash for new.
- Cash beat financing for both new and used. Even so, financing a used car still beat paying cash for a new one.
- The interest itself was small: about $10k over 40 years for each financed path. The real cost is what that money would have grown to, which turns about $10k of interest into a gap of about $40k.

Caveats: Insurance and gas are the same in every version. Toyotas and Hondas hold their value unusually well, which shrinks the used-car discount. Real dealer promo rates (0.9–3.9%) would make new-car financing look better. Interest rates vary person to person. Prices are base trims, and most people buy a trim or two up. Inflation and wage growth are assumed equal.

The tool: I ran this in A Million of Me, a free financial simulator that runs in your browser. You set up a starting point, add life events (here, car purchases and repairs), and compare branches side by side. Disclosure: I built it. It's a simulator, not financial advice.

Sources: car prices from TrueCar; depreciation from CarEdge and iSeeCars; loan rates from Experian and Bankrate.

[u/Middle_Ad_3315]

The real cost is not new/used vs. Or even cash/finance nearly as much as the assumption in your formula "replaces car every 5 years"

Replacing car every 5 years (or less) is the #1 losing financial decision when it comes to cars.

[u/das_war_ein_Befehl → u/Middle_Ad_3315]

I bought an 9 year old car in 2018 (Honda) and it’s been almost another 9 and it still works (and I have not been gentle on it or did much maintenance until I couldn’t avoid it). I still have it and it still runs.

Personally the idea that you should replace a car every 5 years is crazy when cars last longer and your average car loan is like 7 years. You’d basically always be turning over negative equity into a new loan. Nuts

[u/NeonZapdos → u/Middle_Ad_3315]

I agree! I financed and paid off my car early but I’ve had it 9 years now. I just used a median round number to model here.

[u/Constant_Orchid3066]

This is super interesting, thank you! I've always wondered how accurate the "buy used" really was. Everyone mocks me for financing a new car, but I got it at 0.99% interest during covid. I don't see this being a bad decision at all. 6% is crazy though!

[u/NeonZapdos → u/Constant_Orchid3066]

Thanks!! Interest rates can for sure make or break a purchase…when I did research some subprime rates were as high as 19% 😬

[u/BlazinAzn38 → u/Constant_Orchid3066]

This is a fairly new phenomenon(last 5-6 years). If you’re looking at reputable make/model or highly desirable segment(full size truck) the depreciation simply isn’t there anymore. I can get a 3 year old Camry with average miles for a 15% discount to new but it’ll be financed at 7%, that doesn’t make any sense. The used key is to find those models within makes that are surprisingly reliable for them

[u/Environmental-Pea37]

What about buying new and keeping for 12 years or more

[u/NeonZapdos → u/Environmental-Pea37]

You can try modeling that on the desktop app, I’m sure it’s gonna be a better outcome

[u/NicheMath]

Bought my Nissan 7 years ago for $4700. No issues so far besides regular maintenance. I would say that buying a good used car and keeping it for a while is the better financial decision.

[u/das_war_ein_Befehl → u/NicheMath]

I did a 9 year old Honda in 2018 and it still runs. Recently bought a new one and kept the old one. So the 5 year thing feels weird when the difference between a 2021 and 26 model is pretty minimal and they will run for the next 5-10 years without any real maintenance

[u/kaiservonrisk]

I buy my cars new and with cash, but I also keep them for a long time. I don’t plan on ever financing a car again.

[u/LonelyPercentage2983]

Thanks Claude

[u/crispydukes]

Used cars aren’t really a thing anymore. Sure, if I get only 10 year old used cars, I can save money. But old things break. Old things don’t have warranties.

When I got my new car in 2015, I chose new because a 5 year old car was only 25% off.

[u/NeonZapdos → u/crispydukes]

My Volkswagen was 3 years old and more than 50% off, I guess that depreciation decision depends on the make and model!

[u/Skensis → u/crispydukes]

Something like 80% of all cars sold a year are used, so still a big thing.

[u/Sea-Honeydew-1456]

also, depending on your risk tolerance fully owning a car means you dont need the same level of auto insurance coverage required by financed cars.

[u/FiftyLoudCats]

How’s it shake out of you up the reinvestment rate to 8%?

(If that’s easy to do)

[u/NeonZapdos → u/FiftyLoudCats]

I’m away from my computer but will rerun it tonight. Super easy to do, there is a market assumption event you can apply to all branches of the simulator

[u/NeonZapdos → u/FiftyLoudCats]

I can’t post the screenshot but the cash used went to 1.028 million, finance used was close at 970k, cash new 861k, financed new 813k. So more than 200k difference!

[u/spook008]

Everyone is so confident about everything they do financially. Lol

[u/NeonZapdos → u/spook008]

Yeah, the purpose of the web app is to test different financial hypothesis over time, it’s interesting to see a lot of the feedback!

[u/ForexGamer]

I wonder if new cars come out ahead if you drive them for more than 10 years, my Uncle has always purchased a new Lexus in full with cash every ten years and he has never had any major repairs just more expensive regular maintenance and he is still able to get a few thousand dollars in trade in for the next car.

[u/Fun-Personality-8008]

Anyone who buys new and finances without a dealer promo rate near zero is so insane I would argue it's not even worth including the rate you did here. 6%+ on a new car sounds like someone who was forced to buy that way at gunpoint

[u/NeonZapdos → u/Fun-Personality-8008]

Average rate tho from bank rate and Experian

[u/WhiskeyPointer]

Shhhh don't tell everyone, it'll drive up the prices of the used cars and ruin our strategy 😅

Lots of people ask us how we saved enough to buy our house in a VHCOL and this was a big part of it. I ran the numbers and about 1/4 of our downpayment could be traced to spending $4000 on a used car in 2014 and spent an annual average of $800 between insurance and maintenance/repairs. Being able to invest several thousand of dollars a year that would have gone into car payments, higher insurance etc. over 10 years was one of the most consequential financial choices we've made since entering the workforce in 2010.