Is Buying a Used Car Really Cheaper than Buying New?

photo-1419332563740-42322047ff09If you are looking to buy a new vehicle, used is always cheaper than brand-new, right?

Generally, yes, used cars are less expensive to own than new ones, but it depends on how you do the math, what type of car you are considering, how long you plan to drive it, and other factors. When it comes to price, it maybe less expensive in the long run to buy used rather than new, but not by as much as you might think.

Owning a car costs money. There’s no way around that. Unless you rely exclusively on public transportation, you will likely be paying for a car for the rest of your life – one way or another. Rather than focus on the up-front sticker price when comparing used vs. new vehicles, I like to compare the actual price-per-mile over the life of the car.

No car lasts forever. Your cost-per-mile on a car depends on how much you paid for it, its future sale or trade-in value, and how many miles you drive. Our family car has 135,000 miles on it. By today’s standard, that’s not a lot. Stan our car guy at the local garage has a car with over 300,000 miles on it. That’s a lot. An article on suggests the average car on the road today is 11 years old and has about 165,000 miles on it.

How long your car will last is anyone’s guess, but let’s assume that you put 165,000 miles on your next vehicle before trading it in. Since no car lasts forever, an older car will reach 165,000 miles earlier than a brand-new car, and you will find yourself back in the market for another car sooner than if you bought new. For example, if a brand-new car is expected to last 11 years before trading it in, then a 3-year old used car could be expected to last another 8 years.

Used vs new. Let’s do the used versus new comparison on a Toyota Camry, one of the best selling cars on the road today. Poquet Auto , a Minneapolis used car dealer specializing in high quality, low-mileage vehicles, currently has a 2012 Camry XLE with 24,000 miles listed at $22,300. A similarly equipped 2015 model at a local dealership retails for about $32,000.

That’s a big difference upfront, but how much do you really save over the life of the car by buying used?

If you drive your brand-new Camry for 165,000 miles and your trade in value is $4,681 (Kelly Blue Book on an 11-year old Camry in “good” condition with 165,000 miles), your net cost-per-mile on the brand-new car is $0.166 ($32,000 – $4,681 / 165,000). When you factor in the miles already driven on the used Camry your cost per mile is $0.125 ($22,300 less $4,681 trade-in value, divided by the difference between 165,000 and 24,000). Assuming you drive 15,000 miles a year, the used Camry saves you about $615 every year.

In another example, let’s assume you do the math based on the number of years you drive the car. Assuming you buy the used Camry for $22,300, drive it for 9 years, and get $4,681 on trade-in, your annual cost to buy the car is $1,957. The brand-new Camry driven for 11 years will cost you $2,484 per year after you subtract the trade-in value. A difference of $526 per year.

These examples don’t account for maintenance not covered under warranty, sales taxes or other expenses associated with car ownership. It’s just a simple comparison o f the annual cost of owning a brand-new car might be compared to a comparable one that is just a few years old. You should carefully do your own research before buying a car.

How about older cars? If you want to make the used car option pay off, you should probably go to the extremes and buy a much older car with even more miles and plan to do most of the maintenance yourself. That 11-year old Camry trade-in mentioned above for $4,681 could be a great second car for someone with a need for an inexpensive second (or third) vehicle. If you cross the 300,000 mile mark and do your own auto maintenance like my friend Stan, you may come out ahead.

The choice is yours. There is nothing wrong with buying a used car. Or a new one, if that suits you. If your budget is limited or you are looking for a second (or third) vehicle or you can get a used car at a below market price, a used car may be your best option.

Paying an extra $500 to $600 a year for the life of a new car isn’t an insignificant sum. But when you do the math, buying used versus new isn’t always as inexpensive as it seems.