• Sagar Agarwal

Buying a new car vs an old car

Updated: Feb 24

Thinking of buying a car? Here are some insights that might help you chose a car

Car is probably one of the biggest purchases one makes after a house. You can either choose to buy a new car or an old one. I wanted to understand whether buying an old car is a sound decision solely from a financial standpoint. If it does make sense to buy an old car then how old a car should I buy.

Let me start by making some assumptions,

  1. Looking at a car that is worth $20,000 excluding sales tax

  2. A 5-year loan with 0% downpayment and 3% interest rate

  3. Driving 10000 miles a year with gas costing $3/gallon

  4. Car loses its milage as it progresses over the years. It seems reasonable to me that a car becomes less efficient as it gets older.

  5. I assume that I resell the car after 5 years and after year 15 the car sells for scrap.

  6. The car depreciation and maintenance cost curve is shown below

Below is a snapshot of my assumptions in year 1 and 2. I do this analysis for 15 years and look then calculate the real value of buying a car for 5 years.

Below is the real cost of buying a car for each year old car. Year 1 depicts a new car and year 5 would depict a 5 year old car. The total cost of the car would be its depreciation + total expenses made in those 5 years.

As expected as we buy an older car, depreciation decreases but our expenses to maintain that car increase. For the assumptions I made, it seems to me that somewhere around year 7 and year 8, the car seems to be the 'cheapest'.

In these times when you are probably not driving as much as you usually would and are planning to buy a car. It is important to see how much would you be spending per month on your car. People tend to forget that a car is more expensive than just its sticker price and insurance. In the above example, a car that you buy at year 7 can cost you $420 a month. Out of those $420, $340 are expenses other than depreciation.

Now in these, I agree you stay at home most of the time and you don't drive as much as 10,000 miles a year. Let's assume that you drive only 1000 miles/year, then you would still be spending ~$310 for the cheapest year-old car. This seemed like an eye-opener for me who goes out just for groceries and to meet friends one in two weeks. I am better off paying for Uber if my monthly uber bill is less than $310.

I found this analysis interesting and gives me a perspective on how expensive a car can get. I was planning to buy a car but am holding off my car purchase till I go out more often.

Tell me what do you think in the comments below? Have I missed something?


I show that buying an old car is a better financial decision. There are a lot of costs associated with owning a car that we often forget. For years when we do not drive as much, it might be even worthwhile to postpone your car purchase for a bit as long as you don't have to Uber around a lot.

The link to the spreadsheet is here.


Recent Posts

See All
Never Miss a Post. Subscribe Now!

Contents in this website are for educational purposes only. They should not be considered as investment advice. Please do your own research before making any decisions with your money. Contact a professional as to legal, business, tax, and other related matters concerning any investment.

© 2021  Sagar Agarwal