The Great Car Debate: New, Used or Leased?

Buying New vs. Used
What’s not as clear, despite the wide price difference and conventional wisdom, is whether buying a new vs. used car makes more financial sense. When you factor in market value in the Edmunds example, the new car’s value after five years was $7,000, while the used car’s value was just $2,000. That would bring your total monetary committment, if you were able to sell both vehicles, down to $25,388 for the new car and $16,390 for the used. Still a big difference, though: $8,998 in favor of the used car.
The Life-of-Vehicle Argument: Where Conventional Car Buying Advice Takes a Turn
Here’s where the Edmunds example leaves you hanging a bit. If you had bought a used car at nearly half the price of the new, drove it five years, and it is now worth just $2,000, the odds are good that it probably doesn’t have much life left in it. It would have been roughly 5 years old based on a 50% resale value (and dealer/seller markup) when you purchased it. On the flip side, the new car might give you a run of another four, five or even seven years, particularly if you are a conservative driver who follows all of the proper maintenance suggestions. Suddenly, the picture is not so clear.
In the first five years of ownership, a used car cost $1,799 less to own than a new one. But here’s where it gets interesting. Let’s assume you get five more years out of the vehicle that you purchased new. If you had bought used and went out and purchased another $10,000 vehicle, you’d be paying $285/mo. for the second used vehicle. Meanwhile, your monthly payments for the new vehicle would be $0. Suddenly, you’re saving $3,420/year with the new car purchase vs. the additional used-car purchase in the second five years.
And Lets Not Forget…
Some people think of their cars as much more than four wheels that get them from point A to point B. There is an emotional connection and joy factor that is hard to put a price tag on. Some also like the peace of mind of knowing exactly what their car has been through — vs wondering how it has been treated by previous owners.
The Bottom Line
Unless you are in a very short-term, high-need situation that turns the numbers in your favor, leasing rarely makes financial sense. (Though if you’re truly the type of person who likes to show off with a shiny new car every two or three years, then leasing might be your best bet. After all, if you try to sell a new or used car just two or three years into a longer-term auto loan, chances are you will be “upside down,” or owe more than the car is worth.)
Choosing between buying new or used is much more complicated. If you plan on driving the car into the ground (that is, keeping it for 10 years or so), it might make a lot of sense to buy new versus used. If you want to swap vehicles more frequently, buying used makes more financial sense. The qualitative and emotional aspects of vehicle ownership may yield a different outcome altogether.