Once you have an idea of the kind of car you

want and roughly how much you’re looking to spend, the next question might be: new or

used? A used car will often cost less than a new

one. But a new car may be more reliable and have fewer unexpected repairs that can impact

your schedule and budget. For this example, let’s take a look at two

cars- one new, and one used, and then compare and contrast all the variable expenses you

might encounter with each car over the next five years – like, the cost of the car, the

cost to finance it, the cost of gas, insurance, and finally maintenance and repairs. But first, let�s start with the cost of

the actual car. So over here, let�s say we have a brand

new car with a sticker price of nineteen thousand dollars� and over here, we have a used car that is

the same make and model as the other one, just five years older that we found for sale

by its owner for ten thousand dollars. Now you may be wondering why is the used car

so much cheaper than the new car? There are a couple of factors- one is that the new car

comes with a warranty which will cover some of your repair expenses, but the biggest factor in the price difference

is depreciation. As a car gets older, it loses value, that

is, it depreciates. So this new car that cost nineteen thousand

dollars, after five years might only be worth about ten thousand dollars even if you�ve

kept it in good condition. And the same car might only be worth about

five thousand dollars in another five years. As you can see, depreciation doesn�t happen

at a constant rate. Sure, it�s almost always going to go down,

but a new car loses value fastest the moment you buy it, but then slows to a more constant

rate after the first few years. If you plan on driving your car until it falls

apart, depreciation won�t matter as much because you�re not going to resell it. But

if you plan on trading it in or selling it after five years, it can make a big difference.

With a new car, in five years, your car might be worth about nine thousand dollars less

than what you initially paid. And with the used car, over five years, your car might

only be worth five thousand dollars less. Now let�s take a closer look at some other

differences, starting with the financing. You may be wondering if you can finance a

car you buy from an individual? Fortunately, you can get this kind of financing from a

bank or a credit union. But when you purchase a used car, you�ll

likely get a higher interest rate than when you buy a new car. So, let�s say the annual percentage rate,

or APR on a five-year loan for the new car is three point five percent. And the APR on

a loan that you get for the used car could be something like four percent. Using an online loan calculator, you�ll

find that on the new car, you�ll be paying about twenty thousand seven hundred dollars

over five years�that�s nineteen thousand dollars in principal and one thousand seven

hundred dollars in interest, with monthly payments of about three hundred fourty five

dollars. On the used car, you will pay about eleven

thousand fifty dollars over five years: ten thousand dollars in principal and one thousand

fifty dollars in interest with monthly payments of about one hundred eighty five dollars. So even though you have a higher interest

rate on the used car, you�ll pay much less in interest and in monthly payments because

your principal is much less on the used car than on your new car. Next let�s compare gas mileage. Let�s

say the new car gets thirty three miles per gallon and the used car gets twenty nine miles

per gallon and you drive about fifteen thousand miles per year. Let�s also assume that gas

will be a constant four dollars per gallon. [take this next section very slow] Over five years� taking the miles driven�

divided by the miles per gallon� times the price of gas per gallon� we would be spending

about… [resume normal speed] nine thousand one hundred dollars for gas

for the new car and about ten thousand three hundred fifty dollars for gas in the used

one. Then there are insurance rates to consider.

Insurance rates vary based on a lot of different factors, and in looking at new versus used,

the difference in the rate for you will likely be based mostly on the replacement cost of

the car. The more valuable the car, the higher the insurance rate. So while a new car might

get you some discounts for new safety features, generally a used car that�s less valuable

is going to cost less to insure. So with a new car, your insurance might cost

one thousand five hundred sixty dollars a year. Over five years: seven thousand eight

hundred dollars. And with a used car, your insurance might

cost one thousand two hundred dollars a year, and six thousand dollars over five years. Now let�s look at maintenance and repairs.

This is the trickiest cost to estimate because it�s unpredictable and major repairs can

have a big impact on your budget. With a new car, major repairs may be covered

by a warranty in the first few years. So let�s estimate that over five years you spend three

thousand dollars total on maintenance and repairs on the new car. Now, when you buy the used car, you do have

the option of buying certified pre-owned- this will cost a bit more, but it�ll also

come with some sort of warranty. But for this example, let�s just stick with

the car you bought from its previous owner. The cost of regular maintenance typically

increases as the car ages�and so does the chance of needing a major repair. Major repairs

can be inconvenient too� they take time and sometimes you might have to get a rental

car while yours is in the shop. For the used car, you might be lucky and only

need to spend around four thousand dollars on maintenance, but a more realistic number

may be around six thousand dollars on the used car. So adding this up� � you�d spend a total of fourty thousand

six hundred dollars on the new car and thirty three thousand four hundred dollars on the

used car over five years. That�s a difference of about fourty thousand six hundred minus

thirty three thousand four hundred� seven thousand two hundred dollars less on the used

car. Now, keep in mind, this doesn�t take into

consideration the value still in the cars. The new car probably has a few more years

left in it than the used one and if you were to resell them, you�d be getting about ten

thousand dollars for the new car rather than about five thousand dollars for the used car. But we�re looking at a lot of variables,

after all. With certain cars and situations the new one may end up costing you less than

the used one. And there are multiple other things to take into consideration. A new car will probably be more reliable,

with newer features and it may be safer or better for the environment. With a used car

you�ll have lower monthly payments, which could be good for your budget, but it may

also be less reliable and you could have larger unexpected costs when it comes to repairs. By looking at your own needs and budget, and

doing the research and the math on the cars you�re interested in, you can figure out

which is the best choice for you.