The Math Behind New vs. Pre-Owned Cars
One of the chief complaints that I get when talking about buying a pre-owned car is that you don’t know what you’re going to get. And while that can be true, some used-car retailers now provide complete inspections and a generous guarantee, making it much safer to buy pre-owned, whether it’s for your college-aged child or on a budget retirement vehicle.
The Math
1st Minute: The New Car Depreciates by 10% when it is driven off the lot
1st Year: The New Car depreciates another 9% within the first 12 months
2nd-3rd Year: The New Car depreciates another 20%, 10% per year
You’re left with a 3-year-old car that is worth about 61% of its original value.
For Example
#1 – Lexus ES 350
New - 2019 Lexus ES 350: $39,750
Pre-owned - 2016 Lexus ES 350: $24,998* – 63% of current value
#2 – 2019 Honda Accord
New - 2019 Honda Accord LX: $23,720
Pre-owned - 2016 Honda Accord LX: $15,998* – 67% of current value
Takeaway: The math adds up. As suspected, some cars that are perceived as more reliable had gone down in value less, such as the Honda Accord.
Sources
- https://www.carmax.com/cars/es-350/2016/lexus
- https://www.carmax.com/cars?search=2016%20Honda%20Accord
Disclaimer: Make sure you do your own research and due diligence before buying a used or new vehicle. Any links included in this article are not endorsements for the website that the link leads to. Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.