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Is it better to buy a new or used car?

Consumer Reports News: August 14, 2012 01:38 PM

One of the biggest dilemmas when buying a car is whether to purchase new or used. As we head toward the end of summer, the 2012 model year is winding down. There are tempting deals being advertised at every turn. In these dynamic economic times, does the conventional wisdom still ring true, that it is cheaper to buy used than new? Our analysis provided a fresh, and even surprising, insight.

To crunch the numbers, we looked at current deals for a few popular 2012-model-year (MY) sedans and SUVs and compared them to the used-car pricing for the same model from 2010 and 2008. In some cases, with a slight increase in monthly payment, you can get a new car without the used car mileage and with a full manufacturer's warranty.

To illustrate the findings, the chart below highlights the differences on five Consumer Reports' recommended vehicles--the Ford Fusion and Honda Accord sedans, and Acura MDX, Ford Escape, and Honda Pilot SUVs.

The 2010 models have 28,000 miles and 2008 models have 47,000 miles. The monthly payment is calculated with the assumption that the buyer puts 10-percent down on a 5-year loan on the new car; the 2010 and 2008 calculations were based on 10-percent off the 2012 equivalent. For the new cars, the price listed is Bottom Line Price; for the used cars, the chart shows the retail price. Our calculations are based on the average New York metro-area financing rate of 3.365 percent for new cars and 3.310 percent for used cars, according to Bankrate.com. In looking at current financing rates in five metro areas, new car loan rates are comparable to used cars.

The Honda Pilot is one example where a new car is worth buying over a 2-year-old car. The lightly freshened 2012 model monthly payment amount is $531 and the 2010 is $496, a difference of about $35. For a total cost differential of $2,083, you could get the new car with zero miles on the odometer and a full 3-year, 36,000 mile warranty.

However, opting for the 2008 Pilot, could be a better checkbook choice and provide more significant savings than the new car--over $9,000 off and $150 less per month, which could offset the mileage and maintenance. So here, "new" trumps "nearly new," though used (4 years old) is a true way to save money.

The Acura MDX is another example where the 2008 version may be a better deal, but in some cases like the Ford Fusion or Honda Accord, for less than $100 more a month you could drive away with the new model, as they are both discounted in anticipation of all-new 2013 models.

These examples illustrate that especially at the end of the model year, the deals available could be worth choosing a new car over a used one, but it's important to do your research. There is not single sound-bite solution that suites all scenarios.

While purchase price is a natural focus, don't look solely at the cost to buy, but how much the vehicle will cost to own over time. Factors such as depreciation, insurance, financing, fuel costs, and other operating expenses can quickly add up through the years and may make that deal not look so good after all. (Owner cost information is available on the model pages.)

Make & model Price % off original MSRP Monthly payment Total payment (after 60 months) Cost differential from new vehicle
2012 Ford Fusion SE FWD $18,823 21% $307 $20,311  
2010 Ford Fusion SE FWD
$16,800 20% $270 $18,089 -$2,223
2008 Ford Fusion SE FWD
$13,500 29% $210 $14,504 -$5,808
2012 Honda Accord LX Premium $20,383 15% $333 $21,995  
2010 Honda Accord LX Premium $18,250 20% $294 $19,651 -$2,344
2008 Honda Accord LX Premium $15,450 30% $243 $16,609 -$5,386
2012 Acura MDX $38,397 13% $627 $41,434  
2010 Acura MDX $34,850 17% $561 $37,530 -$3,904
2008 Acura MDX $27,800 31% $434 $29,870 -$11,564
2012 Ford Escape XLT $22,341 19% $365 $24,108  
2010 Ford Escape XLT $19,150 24% $306 $20,612 -$3,497
2008 Ford Escape XLT $15,025 36% $232 $16,130 -$7,978
2012 Honda Pilot EX-L $32,556 12% $531 $35,131  
2010 Honda Pilot EX-L $30,675 13% $496 $33,044 $2,087
2008 Honda Pilot EX-L $24,275 27% $381 $26,091 -$9,040

Check out our new and used car Ratings to see which models performed well in our tests. Also, see our report on the best car values.

For more deals, see our lists of best new and used car deals.

Updated: 8/31/12 to correct some calculations. 9/21/12 to clarify explanation.

Related:
How to make your car last 200,000 miles

Liza Barth

   

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