Does Buying a Used Car Worth it?

Many people and maybe even you want to buy a lightly used car or a one-year-old car thinking it’s going to save them an enormous amount of money versus buying a brand new car.

The belief of course is that buying a brand new car is not a good idea because they can depreciate by up to 30% or even 40% the moment you drive them off the lot and you’re going to be losing a lot of money. Buying a lightly used car or a one-year-old car is a way to go because you’re going to save yourself a ton of money versus buying a brand-new car.

We are going to explain how this belief which has stubbornly prevailed over the last several years is absolutely not true in many cases. and how does buying a lightly used car can actually cost you more money than just buying a brand new car?

All New Cars instantly Plummet Myth Debunked!

The biggest problem with this belief is that it is based on the misconception that the moment you drive a brand-new car off the lot it immediately depreciates by 30% to 40% and that is absolutely not true for many brand-new cars.

In the case of a lot of popular cars including many Toyota, Honda, Subaru, and a few other popular models these cars actually depreciate very little in their first few years and hold their value extremely well.

Depending on the model you’re looking at you might only see around 5% to 10% price depreciation in the first year and it could potentially be a lot less than that depending on the particular model.

The reason for the small amount of depreciation on these brands is that they’re extremely popular with consumers with very high demand and limited availability. If you’re looking on the used car market for a lot of these cars including like say a Toyota rav4, a Toyota Tacoma, or a Subaru forester there’s just not a lot of selection to choose from so the prices on what’s out there remains very high.

Just doing a quick used market search and comparing the asking prices on a lot of these used cars at dealerships when compared to the brand new car price you will see that there isn’t a huge difference when you compare the two models side by side.

Example of a used car Value

Let’s look at a really popular model as an example such as the Toyota RAV4 Hybrid. If we look at the prices of used ones that dealerships are asking for, we will see the prices are very high and close to that of a brand-new model. So there isn’t a lot of incentive to consider a lightly used one when you can get a brand new one for almost the same price.

A website called iseecars.com even came out with a list of one-year-old cars that have such high prices on the used car market that it makes very little sense to consider them when compared to a brand-new model.

Some of the models that made this list include the Tesla Model 3, Toyota Tacoma, KIA telluride, Toyota RAV4, Hybrid Toyota Tundra, Honda Civic, Jeep Wrangler, and Toyota 4 Runner. A lot of these cars have historically had extremely high resale value and don’t depreciate very much in the first couple of years. A lot of these models also have very limited availability and can be very difficult to find both on the new car market and used car market which helps keep their prices very high as well.

Another very important factor to consider here is the cost of financing which is something that a lot of people do when they purchase either a new car or a used car.

It’s important to remember that a lot of new cars can be purchased with incentivized interest rates on financing it’s not uncommon to come across some new cars that have interest rates as low as 0% that’s a huge difference from what you’re gonna find on a lot of used cars where the interest rate can be anywhere from 5% to 7% for well-qualified buyers.

With such a huge difference in the interest rate and cost of borrowing, it’s not unlikely for a lightly used car to actually come very close at price to a brand new car or potentially even cost more than the brand new car when you consider the cost of borrowing on the financing.

Let’s do a perfect example of what we are talking about and see which one is actually the better deal. We are going to compare a brand new 2021 Honda CRV LX 2WD to a lightly used one a 2020 Honda CRV LX 2WD drive that has 20,000 kilometers on it and let’s see which one is actually cheaper.

So if we look at the price of the 2021 CRV, above that the all-in price including fees taxes any available rebates, and discounts comes to about $34,400. Now at the time of this ‘October 2021’, Honda was offering a very good financing deal on brand new CRVs you could get 0.99% interest financing for 36 months which adds up to around $500 worth of interest making the total cost of borrowing on this car about $34,900.

At an all-in price of $34,900, that leaves you with a monthly payment of about $970 per month for 36 months or three years.

Now let’s compare this deal to the price of a slightly used 2020 CRV that has 20,000 kilometers on it. We found for sale listed by a honda dealership the total cost on this model including fees and taxes comes to $30,500.

The biggest difference here, however, is the cost of the financing the interest rate is 5.99% for 36 months. So when you factor in that additional interest the total cost of borrowing ends up being $32,900.

With an all-in price of $32,900, the monthly payment ends up costing $915 over 36 months which means that you are ultimately saving about $55 per month or $2,000 altogether by buying the lightly used CRV versus the brand new one.

Now some of you might be thinking oh well $2,000 dollars is still so good money to put in savings. But remember we’re not comparing apples to apples and there are other things that you need to factor in which take away from the value of buying A lightly used car.

By going with the one-year-old car you’re also losing a full year’s worth of warranty coverage, you have a car that has a lower resale value, and you might need to spend some money on maintenance as well.

So when you factor all of those things into the equation you’re actually not saving anything by buying the one-year-old CRV.

We should tell you that this example is unique but this is not an uncommon scenario with a lot of buyers who are looking to purchase a one to two-year-old used car.

In a lot of cases buying a lightly used car just does not make a lot of sense and you’re actually better off by just buying the new car in the first place.

Of course, this does not apply to all new cars there are situations out there where buying a lightly used car can in fact save you a lot of money.

Great examples of where you can find huge savings on lightly used cars include a lot of luxury brands including brands such as BMW, Mercedes, Audi, And Infinity. These are companies that have huge depreciation on their cars within the first year or so, which means that you can in fact save a lot of money if you buy one of these cars lightly used.

The reason why a lot of these cars depreciate a lot within the first couple of years is that they’re very expensive to buy brand new and they’re not as desirable on the used car market.

The same is also true for a few different domestic cars including Mini, Ford, GM, and Chrysler models which can depreciate quite a bit within the first couple of years.

If you’re able to save yourself at least 15% to 20% off the price when compared to the equivalent new car then yes buying lightly used does make sense even when you factor in the additional cost of financing.

Whatever car you decide to purchase make sure that you do your research and find out whether there is a significant price difference between buying new versus buying used and again don’t assume that you’re going to save yourself a lot of money by buying a lightly used car because in fact in many cases buying brand new makes a lot more sense.