Growing up I would commonly hear that if you bought a new car, you’re burning your money. So, once I started working and headed to college I started to look for a car. At that time a new small car was $18k and a used one (5 years old with 50k miles) was about 10k.

Now in my mind if buying new was wasting money, so was buying a 5 year old vehicle. I was only looking at cars with over 100k miles which were about $4k. Being the genius I was, I bought a Mitsubishi mirage for $2,100. I thought I was really lucky to find a car that cheap and working. I drove it a few months and realized why it was so low, every time I took a turn it would violently shake. I took it to a mechanic and he said the axle needed to be replaced along with the steering knuckle. Which would cost $1,000 ouch!!

I decided to sell the Mitsubishi and was able to sell it for $1,900. Looking back at it now, that was an awesome deal. Then I bought a ford escape for $3,800. This time I thoroughly tested the car knowing how much of a headache the last car was. Within a month the power steering failed. Luckily it was just a hose that needed to be replaced but still cost $200 to fix. Six months later I felt a thud when the transmission changed gears. I tried Lucas oil and it did help for a month, but it came back. Finally I went to the mechanic, and just by driving the car for 5 minutes he knew I needed a new transmission since he replaced so many of them for my make and model. I wasn’t going to pay $3,000 to have the transmission repair, so I decided to sell the car and just buy a new car. This time I sold it for $3,200, losing $600.

I bought a Toyota corolla and i haven’t had a problem in 10 years of ownership. What’s interesting was when I was in college I avoided Toyotas because they were “expensive”. Why should I pay $5k for a used corolla when I can get. ford or Mitsubishi for $2,000.

Cost of ownership

So to answer the question, does buying used save money? you have to do a little math. But in general the answer is no. What we need to calculate is the cost of ownership. In this scenario we will use the Toyota corolla as an example and assume we keep the vehicle for 5 years.

cost of ownership = ( price you bought it for – price you sold it for ) + repairs

Scenario 1 – buying new

cost of ownership = 24K (price new) – 18k (used price) = 6k

24k is the price of a new corolla, and 18k is the average price of a 5 year old corolla with 50k miles (will vary by location). You can use cargurus.com or any used car site to see the price of a used 5 year old car. which gives a total cost of 6k.

scenario 2 – buying used

cost of ownership = 18k – 12k = 6k

a 5 year old corolla cost 18k and a 10 year old corolla cost 12k. so the cost of buying a used car (with 50k miles) and selling it 5 years later (100k miles) will be 6k.

In Both scenarios we see that the cost is the same. Actually buying new will be cheaper since you typically get a 5 year warranty on new. I personally prefer new because I like being the first owner. Buying a used car is a headache itself. I’m always worried, what if the car is flooded, what if it was crashed.

scenario 3

Scenario 3 is when you buy a really old car (older than 10 years). The problem with this is it’s really difficult to estimate repairs. On one extreme end you might be able to get a vehicle today for $4k and drive it 5 years, which would be a good deal. But, on the other extreme end the engine could go out in 6 months and you just lost $4k. In other words it’s risky, it’s a gamble. Which is odd since people who are looking for 10 year old cars are people who don’t have much money, meaning they’re not in a position to gamble.