New vs Used Car Calculator

Depreciation is the headline cost

The cash price is not the cost. What a car costs to own is the value it loses while you have it, plus what you spend keeping it running. This calculator applies a constant annual depreciation rate to each option, compounding on the falling value rather than on the original price, and adds a flat annual maintenance figure. At the defaults, a 35,000 new car losing 15% a year gives up 55.6% of its value over five years, or 19,470. A 22,000 used car losing 10% a year gives up 41.0%, which is 9,009. The used car sheds a smaller share of a smaller number, and that gap is most of the answer.

Maintenance trades the other way

Newer cars usually sit inside a manufacturer warranty and cost less to keep on the road; older ones do not. The defaults put that at 300 a year against 700, so over five years maintenance costs 1,500 for the new car and 3,500 for the used one, closing 2,000 of the depreciation gap. The model holds each figure flat for the whole period, which is a simplification: a new car's maintenance is near zero under warranty and rises once cover ends, while a used car's tends to climb with age. Running the two extremes and comparing gives a better sense of the range than any single figure. On the defaults, used maintenance would have to reach 2,392 a year before the new car came out cheaper overall.

Where used usually comes out ahead

Buying two or three years into a car's life transfers the steepest part of the depreciation curve to the first owner. The defaults model that as a 37% lower purchase price, which produces a five-year total cost of 12,509 against 20,970, or 40% less. The economics of that gap are studied rather than folk wisdom: Hendel and Lizzeri model how buyers self-select between new and used durable goods and show that used markets stay large even where the seller knows more about the car than the buyer does. The same authors examine how leasing contracts feed used markets, which is where much of the two-to-three-year-old supply comes from. The gap narrows where the model on offer holds its value unusually well, where a new car carries a heavy discount, or where a long warranty is bundled in.

A worked example

The defaults are a 35,000 new car against a 22,000 used one, depreciating at 15% and 10% a year, with maintenance of 300 and 700 a year over five years. New: 19,470 of depreciation plus 1,500 of maintenance is 20,970. Used: 9,009 of depreciation plus 3,500 of maintenance is 12,509. The used route is cheaper by 8,461.09 across the period. Stretch the hold to ten years and the gap widens to 9,780, because the new car keeps losing value from a higher base.

What moves the number most

All seven inputs feed the result: New Car Price, Used Car Price, New Annual Depreciation, Used Annual Depreciation, New Annual Maintenance, Used Annual Maintenance and Ownership Period. The two prices dominate, because depreciation is charged as a percentage of them. The depreciation rates come next, and they compound, so a point of difference matters more the longer the hold. Maintenance is linear and therefore the mildest lever per unit changed, though over a long ownership period it accumulates enough to swing a close comparison.

The formula behind this

Depreciation over the period is price multiplied by one minus the remaining-value factor, where that factor is one minus the annual rate raised to the number of years. Maintenance is the annual figure multiplied by the years. Each option's total is the sum of the two, and the result is the difference between the totals, labelled with whichever is lower. Nothing is discounted, so a cost in year five weighs the same as one in year one.

What sits outside the comparison

Fuel or charging, insurance, road taxes, tyres and unscheduled repairs are all absent, which is defensible only where they are similar across the two options. Finance is absent too, and it rarely is similar: subsidised manufacturer rates on new cars and higher rates on used ones can move a comparison this close. The model also assumes the car is sold at the end of the period at exactly the depreciated value, with no allowance for condition, mileage or the state of the market on the day. Nor does it price the risk difference: a used car carries a wider spread of possible repair bills than a warranted new one, and the calculator shows a single expected figure rather than that spread.

Beyond the money

A car is not only a cash-flow decision. Reliability, safety equipment that only appears on newer models, the time cost of arranging repairs, and simply wanting the thing all count, and none of them appear here. The value in the figure is that it makes the money side explicit, so a decision to pay more anyway is made knowingly rather than by accident.