Buying a New Car vs. Buying a Used Car

To compare the costs of leasing, buying new and buying used, we’ll use a popular vehicle in our examples: a compact SUV. Most owners in the U.S. keep their new and used vehicles for 79 months — just over 6.5 years That’s the length of ownership we are assuming here. To match that period, we are basing the leasing example on two back-to-back three-year leases, totaling 72 months. You can see the other assumptions behind these examples at the end of the story:

Leasing: The average lease cost is based on a compact SUV that sells for $28,863 and has drive-off fees of $2,246. For the lease’s interest rate, better known as the money factor, we’ve used the average amount: 0.001127. This results in a $356 monthly payment for three years. We used the same numbers for the second three-year lease.

Buying New: The average amount financed for a new car is about $27,435, with a down payment of $3,553. The average interest rate is 6.1%, resulting in a monthly payment of $456.

Buying Used: The average amount financed for a 3- or 4-year-old compact SUV is $18,792, with an average down payment of $2,354. The interest rate for used car loans is usually higher than for new, and in our case it would be about 8.7%. These factors result in a monthly payment of $336.

After six years, here are the total out-of-pocket costs for each financing method:

 Buying UsedLeasingBuying New
Total out-of-pocket costs$24,188$29,412$32,830

In terms of out-of-pocket spending, leasing costs $3,418 less over six years than buying a new car, excluding any repair costs the new car might incur. The out-of-pocket cost of buying a used car is $5,224 cheaper than leasing and $8,642 cheaper than buying a new car. We have excluded any repair costs for the used car.

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