Should you buy a new or used car? This is an ages-old question. From a purely financial standpoint, it is better to buy a late-model used car. I want to emphasize the term, "late model," which I define as being a car no more than about three years old. Unless you possess do-it-yourself skills as a mechanic or have intentions of restoring a classic where money is no object,it's best to stay away from cars that are more than five years old.

But let's get back to those "late-model" cars I referred to: Everybody has heard the old saying that a new car will depreciate $2000 as soon as it's driven off the dealer lot, and there's a lot of truth to this. The fastest rate of depreciation will generally occur in a model's first year. This can amount to as much as 20% of the retail price.

For example, let's suppose a brand new 2008 or 2009 model has a firm price of $25,000. If you have decent credit, you'll be looking at a 60-month loan at about $500 a pop. Over the term of that loan, you will pay out a total of $30,000 for that car. Of course, if you have cash, you won't have to pay interest. In either case, by the time the car is five years old, it's probably worth about half of its new price. If you paid out $500 a month, you've spent $30,000 to have a car now worth $12,500. Minus repairs and maintenance after depreciation, you've spent $3500 each of these five years. If you happened to have cash at the time of purchase, this equates to a yearly expenditure of $2500 before upkeep.

Now let's suppose that you buy the same one-year-old car with less than 20,000 miles on the odometer for $20,000. Your loan payment will be about $100 less for five years or the same as above for only four years. The car will still be worth half of its new value in four years, but you've ended up saving $6000 whether you financed it or had cash.

But what about increased repairs and maintenance? Let me put it this way: If you have to spend $6000 over four or five years on the upkeep of a car that was only a year old at acquisition, then you've landed a piece of junk. The likelihood of that occurring is extremely remote. In this day and age all cars; regardless of make or model, are far more reliable and trouble-free than they were even ten or fifteen years ago. Nevertheless, if you are one who insists on piece of mind, purchase an extended warranty. Just make sure it doesn't cost more than what you'll save by buying a used car in the first place! Otherwise, you should just buy a brand new car. Personally, I never buy extended warranties on used cars. I take my chances that the repairs and maintenance will be less expensive in the long run, and so far, in my 32 years of driving I'm winning; even when you count the worst car I ever owned, which you can read about in another article right here in Helium-Land.

Obviously, new car buyers are needed in order for those of us who prefer to buy slightly used cars to do so, and there are plenty of people who insist on experiencing that new-car smell as well as a full factory warranty.

Over a lifetime of driving, buying slightly-used cars will save thousands of dollars to enjoy other activities. The trick is to let the above buyers depreciate the car for you.

Learn more about this author, Patrick Sills.
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