Bought New vs Bought Used — The Real Math

Summary

The video compares two car-buying strategies over 20 years. Jake repeatedly buys new SUVs, while David buys three-year-old used SUVs and keeps them longer. The comparison includes depreciation, loan interest, and repairs and maintenance. It excludes insurance and does not account for every possible ownership cost.

The example starts with a roughly $50,000 new SUV for Jake and the same model, three years old, for about $30,500 for David. Their modeled monthly payments are $745 and $529, respectively. For context, the video cites Experian averages of about $765 per month for new cars and $542 for used cars.

Key financial points

• Depreciation: Citing Kelley Blue Book, the video says new cars lose around 20% of their value in the first year and close to one-third within two years. In the example’s first year, Jake’s SUV loses about $10,000 in value, compared with about $4,000 for David’s already-used vehicle.
• Financing: The cited average loan rates are about 6⅓% for new cars and 11% for used cars. David borrows less, but his higher rate initially means he pays more interest.
• Maintenance: Older vehicles generally cost more to maintain. Citing CarEdge, the video says annual costs rise from a few hundred dollars for newer cars to well over $1,000 when cars reach roughly eight to ten years old.
• Ownership pattern: Jake trades in his car every six years, buying new at years 0, 6, 12, and 18. David initially buys a three-year-old vehicle, keeps it for ten years, and then buys another three-year-old vehicle.

Cost checkpoints

Time Jake: new-car strategy David: used-car strategy David’s lead Year 3 ~$27,700 ~$20,900 ~$6,800 Year 6 ~$43,800 ~$34,600 ~$9,200 Year 10 ~$77,600 ~$47,400 ~$30,000 Year 20 ~$152,000 ~$95,000 ~$57,000

At year 20, the modeled costs break down as follows:

• Depreciation: Jake, ~$105,000; David, ~$45,000. David saves about $60,000.
• Interest: Jake, ~$30,700; David, ~$18,800. David saves nearly $12,000.
• Repairs and maintenance: Jake, ~$16,400; David, ~$30,900. David spends about $14,500 more.
• Total: David’s modeled costs are about $57,000 lower.

The video concludes that David’s higher repair costs are outweighed by lower depreciation and interest costs. In a sensitivity test using a gentler depreciation assumption—citing iSeeCars research on roughly 950,000 sales and an average 42% value loss over five years—David still comes out ahead by about $35,000.

Framework and considerations

• Compare full ownership costs, not just monthly payments or repair bills.
• Account for depreciation, financing costs, and maintenance over the expected holding period.
• Consider whether keeping a vehicle after its loan is paid off is financially preferable to trading it in and starting a new loan.
• Weigh potential savings from buying used against the benefits of buying new, including warranty coverage, newer safety features, fewer unexpected repair bills, and greater peace of mind.
• Treat the result as an example, not a universal rule. Vehicle prices and loan rates vary. The video excludes insurance because costs depend on location and driving record; it also notes that new cars generally cost more to insure, which could further favor David’s strategy in this comparison.

Other details

• Assets and instruments mentioned: SUVs and vehicle loans. No stock tickers, ETFs, bonds, or cryptocurrencies are mentioned.
• Disclosures and caveats: The video does not explicitly say “not financial advice.” It presents an illustrative comparison using cited industry data, acknowledges that insurance is excluded, and notes that vehicle prices and loan rates vary.
• Presenter and sources: The narrator is not named in the subtitles. The channel is The Gen X Way, and the comparison’s characters are Jake and David. Sources cited include Kelley Blue Book, Experian, CarEdge, The Zebra, and iSeeCars.