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Year old cars are MUCH cheaper than new cars

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1 Year old cars are MUCH cheaper than new cars on Fri May 27, 2016 1:14 pm

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Year old cars are MUCH cheaper than new cars


The average new car has a list price of around £28,500. But by the time it's one year old with 10,000 miles on the clock it costs just £21,000 – a reduction of more than 27% in the first 12 months. In the second year the depreciation rate is likely to slow by roughly half (so the second year, this average car would lose around £3,750 in value).
So picking a year-old model will dramatically slash the upfront cost. There are exceptions if you’re picking a plush model. Brands that hold their value best tend to include Mercedes and Porsche - so you won't see too many year old luxury car bargains out there.

One Car, Three Financing Methods 
In this analysis we look at an average car ownership period, which IHS Inc. estimates at almost six years. We then look at Edmunds.com transaction data for the financing information on a midsize sedan such as aToyota Camry or a Honda Accord, like the 2015 vehicle pictured above. For each category (leasing, buying new or buying used), the averages in this article are based on thousands of recent transactions across the United States. These reveal the average cost of the car, interest rate, down payment and monthly payment.

Since most people lease for three years, we compared two lease cycles to one buying cycle for new and used cars. In other words, in the buying comparisons, the person purchased the car, financed it for five years (60 months) and then had one payment-free year of ownership. (We don't actually recommend financing a used car for 60 months but, for purposes of comparison, we have included those figures here.)
Here's how we structured the different deals:
Leasing: The average midsize car lease is based on a car that sells for $24,775 with drive-off fees of $1,154. This results in a $294 monthly payment for three years.
Buying New: When buying the same car, the average down payment on a five-year loan is $4,104. The average interest rate is 1.64 percent, resulting in a monthly payment of $400.
Buying Used: The average price of a similar 3-year-old midsize sedan is $15,688. The average interest rate is much higher: 6.04 percent. The average down payment is $2,304. The monthly payment is $301. (Fewer low-interest deals are available for used cars, and the credit scores of people shopping in this category are lower, according to Edmunds data.)
After six years, here are the total out-of-pocket costs of each financing method:

 
Leasing
Buying New
Buying Used
Total out-of-pocket costs
$23,476
$28,104
$20,364



In terms of out-of-pocket expenses, leasing costs $4,628 less over six years than buying a new car, excluding any repair costs the new car might incur. The out-of-pocket cost of buying a used car is $3,112 cheaper than leasing and a whopping $7,740 cheaper than buying a new car. Again, any costs of repair for the used car are excluded here.
Here is something essential to remember about the apparent lower cost of leasing versus buying new: At the end of two leasing cycles, the person who leases doesn't own the car. He or she has to start a new lease-or-buy cycle. Meanwhile, the person who bought a new car now owns a 6-year-old vehicle worth about $9,687 on the private-party market, according to Edmunds data. The person who bought the used car now owns a nine-year-old car worth about $4,794.
When we deduct the current value of the new and used car from the out-of-pocket costs, the long-term cost picture changes:

 
Leasing
Buying New
Buying Used
Final costs
$23,476
$18,417
$15,570



In this basic comparison, it appears the person who leased the two midsize sedans paid $5,059 more to drive these cars for six years than did the new-car buyer. Buying a used sedan saved the purchaser $7,906 as compared to leasing during this six-year cycle. Buying used rather than buying new saved $2,847.
Related Expenses 
We should point out that the person who leases escapes the repair and maintenance costs — and related hassles — that owners typically encounter with aging cars. It's true that the person who leases has to pay for routine maintenance, but that is usually just oil changes and tire rotation. (Some people avoid maintenance costs altogether if they lease a new car that has a free maintenance program.)

The car leaser also might have to buy a new set of tires, which could cost about $1,000. Of course, the new-car buyer typically has to pay for maintenance, too, as does the used-car buyer. The used-car buyer might have to foot the bill for some additional repairs as well.
On the other hand, leased cars may require the driver to carry higher levels of insurance, which might offset some of the repair and maintenance costs that car leasing avoids.

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