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Rethinking the math around buying a used car
For cash-strapped consumers shopping for a car, used would seem like the place to start. Not necessarily. A new one might actually be cheaper.
Consider this: The average cost of a used 2008 Honda Accord EX sedan, certified by the dealership, was $21,544 earlier this month, according to Edmunds.com, a car-buying Web site. A new 2009 model cost $80 less.
It's simple supply and demand. With new car sales at a 27-year low and desperate dealers piling on rebates and incentives, prices are plummeting. At the same time, demand is up for used cars and their values are rising.
"The intuitive logic has been that a used car buy is a better buy," said Edmunds CEO Jeremy Anwyl. "But consumers need to check reality. It's very contradictory."
New cars still generally cost less than used ones, but a mix of drastic price cuts, rebates and financing incentives is narrowing the gap.
Automakers are subsidizing zero-percent or low-interest loans on new cars, while the average rate on a three-year used car loan is about 7.5 percent, according to Bankrate.com. Factor in the lower cost of financing and the total cost of the new car can be less.
For example, a $30,000 car with an annual percentage rate of 2.9 percent would cost $662.70 a month over four years. By comparison, a used car with an APR of 7 percent would cost $718.38, a total of $2,673 more over the same period.
Consider this: The average cost of a used 2008 Honda Accord EX sedan, certified by the dealership, was $21,544 earlier this month, according to Edmunds.com, a car-buying Web site. A new 2009 model cost $80 less.
It's simple supply and demand. With new car sales at a 27-year low and desperate dealers piling on rebates and incentives, prices are plummeting. At the same time, demand is up for used cars and their values are rising.
"The intuitive logic has been that a used car buy is a better buy," said Edmunds CEO Jeremy Anwyl. "But consumers need to check reality. It's very contradictory."
New cars still generally cost less than used ones, but a mix of drastic price cuts, rebates and financing incentives is narrowing the gap.
Automakers are subsidizing zero-percent or low-interest loans on new cars, while the average rate on a three-year used car loan is about 7.5 percent, according to Bankrate.com. Factor in the lower cost of financing and the total cost of the new car can be less.
For example, a $30,000 car with an annual percentage rate of 2.9 percent would cost $662.70 a month over four years. By comparison, a used car with an APR of 7 percent would cost $718.38, a total of $2,673 more over the same period.
