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Step 5.1: Money for new and used car

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Honda Civic and Toyota Camry
For those who are still in doubt to buy either new or used car, here we will explain in details with a clear chart showing the depreciation on new car, the differences between the interest rate and monthly car payment. The chart compares the prices between new and used cars. We choose one of the best selling cars in the US as an example – the 2012 Toyota Camry MSRP price is from $21,955.

According to Edmunds’s TMV (True Market Value), the used car pricing for Toyota Camry as of Jan 2012 are listed below:

  • 2011ToyotaCamry: from $16,826
  • 2010ToyotaCamry: from $14,277
  • 2009ToyotaCamry: from $12,806
  • 2008ToyotaCamry: from $11,365
  • 2007ToyotaCamry: from $10,053

Here are the calculations for different cases. The calculations are based on zero down payment. Note that the interest rate may differ from the actual rate.

Case 1: Buy new Toyota Camry

  • Interest rate: 2.9%
  • Loan term: 48 months
  • Monthly car payment: $485.87
  • Total lost on depreciation after a year: $5,129

Case 2: Buy used 2011 Toyota Camry

  • Interest rate: 4%
  • Loan term: 48 months
  • Monthly car payment: $379.96
  • Total lost on depreciation after a year: $2,549

Case 3: Buy used 2010 Toyota Camry

  • Interest rate: 4%
  • Loan term: 48 months
  • Monthly car payment: $322.36
  • Total lost on depreciation after a year: $1,471

Case 4: Buy used 2009 Toyota Camry

  • Interest rate: 4%
  • Loan term: 48 months
  • Monthly car payment: $289.15
  • Total lost on depreciation after a year: $1,441

Case 5: Buy used 2008 Toyota Camry

  • Interest rate: 4%
  • Loan term: 48 months
  • Monthly car payment: $256.61
  • Total lost on depreciation after a year: $1,312

Based on cases above, a car depreciates the most for the first two years. Comparing Case 1 and Case 2, the monthly car payment has a significant difference of $105.91. The depreciation also has a significant difference of $5,192 – $2,549 = $2,643. Is the $105.91 makes no difference to you? Is the $2,643 does not hurt at all to drive a brand new car? If the answer is yes, we recommend you to buy a new car. If the answer is “No, the money lost is hurt”, then used car is still the best choice. A used car is always recommended if you are planning to buy a car with the least monthly payment.

If you noticed about the depreciation for Case 3, 4 and 5, the depreciation slows down after first two years. Comparing Case 2 and Case 3, the difference for monthly payment is $57. Does $57 dollars every month affect your life a lot? If it is not, buying a newer model is recommended. In a nutshell, it will be wise to choose a newer used car if you need to buy one.

Toyota Camry is just one example, you can find out the true market value for the car you wish to buy and compare it according to the method shared here.

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