New Vs. Used Cars: The Cost Breakdown

Written by Dawn Allcot is a personal finance writer with more than two decades experience

Most finance experts recommend purchasing a used car instead of a new car. New cars aren't just expensive, they depreciate quickly and most often require a financing contract in order to afford them. When you break down the costs, a used car can save drivers tens of thousands of dollars over the life of the car.

There are some advantages to driving a new car. It may offer peace-of-mind that you won’t break down on a deserted highway somewhere. It also means you’ll have access to all the newest safety features and technology.

Driving off the lot in a new car can also feel emotionally satisfying. But is it worth the added costs? Let’s look at how much you can save by purchasing a slightly used vehicle.

Average Purchase Price of a Vehicle: New vs. Used

In January 2026, Kelly Blue Book published that the average price of a new car was $49,191. That was down 2.2% from the month-prior and by May 2026, the price dropped to $46,000, according to CarPro. Even so, this is almost $20,000 more than the average price of a used car, which was $26,342 in April 2026, according to AutoTrader.

Additionally, a new car can depreciate so quickly that it leaves a loan "underwater", meaning you owe more on the loan than the car is worth. That may not be a problem if you don’t plan to sell your car before you pay off the loan. But it can mean added costs like gap insurance, plus the emotional costs of feeling trapped in a vehicle loan if the car no longer meets your needs.

Depreciation: New vs. Used

Used cars are a clear winner when it comes to minimizing the effects of depreciation. According to Edmonds, a new car loses roughly 11% of its value the moment it's wheels leave the lot. And after the first year, a new car can lose 20% of its value. It can lose as much as 60% of its value after five years, according to KBB.com.

That means your $46,000 car is worth only $36,800 after the first year. And after five years, that same new car may depreciate by as much as 60%, putting the average value at $18,400.

Instead, imagine buying a car that’s just one year old for 20% less than the brand-new model. That $46,000 car would be $36,800 on day one. And if you buy a certified, pre-owned vehicle, you’ll get all the perks and benefits of a brand-new car, including a factory warranty. Dealerships usually clean up cars very well before sale, so it will even smell new.

Depreciation slows dramatically after year five. But if you wind to find the sweet spot between a car that looks and feels relatively new but has already experienced significant depreciation, a car that’s two to three years old is typically your best bet. After three years, the car has lost 39% of its value.

Of course, if you plan to buy a car brand new and drive it into the ground over 15 or 20 years, depreciation may not matter. Still, buying a one-year-old, low-mileage vehicle can save you 20% or more compared to the same car in a brand-new model on day one and more over time with depreciation.

Finance Costs: New vs. Used

It usually costs more to finance a used car than a new car. Financing costs vary dramatically depending on your credit score, the loan term, the state where you live, and the vehicle.

The average APR for a used vehicle in May 2026 was 10.4%, while the average loan APR for a new vehicle was 6.9%, according to Edmunds.

Using these figures, a buyer of a new car at $46,000, 6.9% APR with a five-year term would pay $8,521.18 in interest. Not counting taxes, titles and fees, the vehicle would end up costing $54,521.18.

Payments for a three-year-old car that cost $28,060, financed for five years at a rate of 10.4%, would pay $8.,043.78 in interest. And the total cost would be $36,103.78 at the end of the loan. This is 33% less expensive than the same new car.

Paying Cash: New vs. Used

Of course, you can save even more money by paying cash for a car. It’s virtually impossible to find a new car under $20,000, though, which could put this goal out of reach for many people. Cash eliminates all interest payments and dealers can be aggressive on price if you are willing to pay in cash.

Should you wish to pay in cash and want to find a car on a budge, you can find 2013 to 2015 models by Honda, Toyota, and Mazda for under $10,000.

Insurance Costs

It typically costs less to insure a used car than a new car, with one caveat: An older car without the latest safety features may cost more for liability insurance. You should always shop around for insurance before you purchase a vehicle so you can make sure the car payments plus insurance fit into your budget.

New cars often cost more to insure than their used counterparts because they have a higher replacement value.

Also, if you finance a new car, you may need to purchase comprehensive coverage, collision coverage, and gap insurance, which will cover the amount left on the loan if it’s greater than the car’s value if a car is totaled.

If you drive an older vehicle and don’t have a car loan, you can take out a less expensive liability policy.

Fuel Costs: New vs. Used

Between 2004 and 2024, automobile fuel efficiency increased by 41% overall. In recent years, between 2020 and 2025, fuel-efficiency in gas vehicles (not counting EVs or plug-in hybrids) has risen slightly and is predicted to continue rising, according to data from the EPA.

The difference in fuel-efficiency between a 2024 model and a 2026 model isn’t likely to make that much of a difference in your overall gas costs. But if you’re looking at a car from 2010 or earlier, expect to fill up more often, leading to higher gas costs.

You can also compare make and model fuel efficiency by using online tools such as the AAA fuel cost calculator.

Maintenance and Repair Costs: New vs. Used

New cars used to come out ahead in maintenance and repair costs by a landslide.

Newer cars are unlikely to experience something like a failed transmission, catastrophic engine failure, or even a bad battery, fuel pump, or alternator. Brakes typically don’t need to be replaced until 30,000 miles or more, while new tires can usually go for five or six years before replacement.

Even if something does go wrong with a new car, it’s usually covered by a warranty.

But if expensive sensor systems and electronics fail on new cars, they can be costly to replace, especially if it’s that one part that isn’t covered by the warranty. In general, though, you’ll save money on maintenance and repairs with a new vehicle, especially if you have a dealer warranty.

When pricey components on an older vehicle break, they might be so expensive it’s not worth keeping the car. For instance, a new engine can cost between $3,000 and $10,000, depending on the vehicle, according to CarFax. A transmission costs between $3,500 and $5,000.

At that point, you’ll want to run the numbers and decide if it’s worth keeping a car that might be worth less than $10,000 even with the new engine.

The Best Compromise: Late-Model Cars Less Than Five Years Old

If you want to balance the peace-of-mind of a newer vehicle with a lower purchase price and lower insurance costs, consider a vehicle that’s being sold after a lease.

After two or three years, the vehicle will have already experienced most of its depreciation. And leases typically keep the driver to 10,000 or 12,000 miles a year, so you can find a relatively low mileage vehicle and save money. It may even have the original manufacturer’s warranty for added peace of mind.

Conclusions

New cars come with peace of mind and an emotional lift. They also come with aggressive depreciation and payment premiums. If you have the time to find a similar used car that is 2-3 years old you will most often end up in a better financial position for a car that is usually very similar to the new car. And with online sites such as Carvana and others, you can find the used car you want and have it in your driveway in a number of days.