Calculating the Cost of a New versus Used Car
This calculator can be used to compare the total cost of purchasing a used car versus a new one. The calculator needs a total of twelve inputs, six for the new car and six for the used car, including:
- Each vehicle’s purchase price. Typically, the price of a used car of the same make and model would be less than the price for a new car
- The down payment on each vehicle, if any
- If each vehicle is being financed, the annual percentage rate charged for each loan. Generally, the rate of interest charged for a new car would be less than a used car
- The term of the loan, which is the length of time over which the loan is repaid, stated in years
- An estimate of the cost to maintain each vehicle. According to statistics gathered by AAA in the United States, maintenance costs are around 60-70 for a used vehicle
- The final input is the years of ownership, which is how long the owner will have the car in their possession
The calculator then provides the user with two sets of outputs, one for the new car purchase scenario and a second set for the purchase of a used car, including:
- The total amount of money financed, if any
- The monthly payment on the loan
- An estimate of the depreciation in the car’s value after one year
- An estimate of the total depreciation in the car’s value, which is based on the years of ownership
- The total amount of interest paid on the loan
- An estimate of the total maintenance expense, which is also based on the years of ownership
- Finally, the total cost of ownership (excluding fuel) is provided in total as well as monthly
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Deciding between a new and used car
Buying a car is oftentimes the second most expensive purchase decisions we make, right behind the purchase of a home. With the popularity of leasing, buyers can often find gently used cars with relatively low miles on their odometers. Certified pre-owned vehicles, which are subject to multipoint inspections, can also lower the risk of buying a used car if it comes with an extended warranty. Since most cars experience the highest levels of depreciation in the first year of ownership, used cars can present buyers with an opportunity to purchase a car at bargain prices. If you’ve been trying to decide if buying a used car is right in your situation, this calculator can help.
Interpreting the calculator’s results
The calculator provides two sets of estimates, which allows the user to make a fairer comparison between a used and new car. The calculator attempts to figure out the total cost of ownership for each car using variables such as the purchase price, depreciation, financing costs, and maintenance. The calculator provides the user with flexibility in terms of how long they own and finance each vehicle, so the value a user wants to pay special attention to is the cost per month. The vehicle with the lower cost per month provides the user with more value. The important assumption here is the owner would be equally satisfied with the purchase of either vehicle, thereby making the comparison of cost per month the right approach to their decision-making process.