The first car I ever bought myself was a brand new car.
At the time, the car industry was having a rough time and offering substantial discounts on new cars.
Recent model used cars were difficult to find. Even when you did find them, they were barely cheaper than a new car.
I figured this was a fluke and bought a brand new car for what I thought would be the only time in my life.
I was wrong.
Why We’re Shopping For A New Car
My wife’s car is 10 years old and still has plenty of life left in it, but we recently added a new family member which has made us rethink our current vehicles. While both of our cars work great for quick trips around town, we no longer have a great car for road trips.
We could all fit, but it’d be a tight squeeze with all of the baby gear we have to take with us on vacations. If we wanted to bring the dog, we wouldn’t have enough room in our car.
Ultimately, we decided it’s probably time to purchase a minivan. After all, cars are for utility, not for looking cool.
Used Honda Odysseys Are More Expensive Than New Honda Odysseys
Fast forward to today and I’ve come across a very similar issue where new cars are cheaper. While we haven’t pulled the trigger on a car yet, we’re strongly considering the Honda Odyssey.
Based on the preliminary research we’ve done, buying a used Honda Odyssey would actually be more expensive in the long run than buying a brand new Honda Odyssey. Here’s how I calculated the numbers that led me to my conclusion.
How To See If A New Or Used Car Is Cheaper
Assuming you’re calculating the costs of buying a new vs used car of the same exact make and model car, here is an easy way to calculate which is cheaper.
First, find the total cost of buying the new car and the total cost of buying the used car.
Make sure to include all fees, taxes, charges and interest if you’re financing. Next, determine the total expected life of the car for your situation in both years and mileage. Now that you have this information, you can run the numbers.
To calculate the total cost of the new car, take the total new car price and subtract the expected value at the end of the vehicle’s life. In our example, the out the door cost of a 2016 Honda Odyssey EX-L was roughly $35,000.
To get the cost of the vehicle at the end of its life, go to KBB.com and pick your car but subtract the number of years you expect to own it.
For instance, we expect to own a new van for 9 years and 150,000 miles, so we quoted a 2006 Honda Odyssey EX-L with 150,000 miles which sells for $4,826 as a private seller. Then take the new price and subtract the end of life sale price to get the total cost.
The total cost of the new vehicle itself would be $30,174 in this case.
For the used vehicle, I found a 2014 Honda Odyssey EX-L for sale for roughly $29,500 out the door with 35,508 miles. The expected value at the end of life was calculated at $3,814. The total cost of the used vehicle itself would be $25,686 in this case.
Total Dollar Cost Isn’t The Number You Should Use
Clearly, in total cost, the used car is cheaper. However, when you consider the true determining factor, cost per mile, things may be different.
In this instance, we’d get 150,000 miles of life out of the new car for a total cost of 20.116 cents per mile. We’d only get 114,492 miles of life out of the used car for a total cost per mile of 22.434 cents per mile. In this case, the used car is more expensive.
Yes, there are other costs to consider such as fuel mileage, maintenance costs, insurance costs, etc. The list could go on for quite a while. However, in the big scheme of things it seems like buying a new car still might be cheaper in the long term over buying a used car.
Did you think a new car could be cheaper than a used car? Have you ever run the numbers and come to a similar conclusion?
Lance Cothern, CPA holds a CPA license in Indiana. He’s a personal finance, debt and credit expert that writes professionally for top-tier publications including U.S. News & World Report, Forbes, Investopedia, Credit Karma, Business Insider and more.
Additionally, his expertise has been featured on Yahoo, MSN, USA Today, Reader’s Digest, The Huffington Post, Fast Company, Kiplinger, Reuters, CNBC and more.
Lance is the founder of Money Manifesto. He started writing about money and helping people solve their financial problems in 2012. You can read more about him and find links to his other work and media mentions here.