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New or used car — which actually costs less over time?

Should you buy new or used? Compare total cost of ownership including the depreciation cliff, finance interest, and HYSA opportunity cost. Find the 3-year sweet spot.

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Vehicle & Hold

Vehicle class
3
5
Auto-estimated used price (3-year-old midsize): $23,936

Finance — New Car

60

Finance — Used Car

60

Cheaper over 5 years:

Used Car

saves $15,323 in total cost of ownership vs the new alternative.

HYSA opportunity value of price difference: $19,079

Over 5 years, the used car costs $15,323 less in total cost of ownership. If you invest the price difference in a HYSA at 3.5% APY, that gap grows to $19,079 — making the used car the clear financial winner.

New Car

Purchase price
$40,000
Total cost of ownership
$57,635
Cost per month
$961
Cost per mile
$0.96
Finance interest
$6,771
Residual value at year 5
$18,536

Used Car (3yr old)

Purchase price
$23,936
Total cost of ownership
$42,312
Cost per month
$705
Cost per mile
$0.71
Finance interest
$4,534
Residual value at year 5
$14,434

Depreciation cliff — vehicle value over hold window

Shows residual value relative to each car's purchase price. The new car takes the steepest early drop.
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How it works

The calculator models total cost of ownership for both vehicles over your hold window. For the new car, it starts depreciation from the MSRP at age zero. For the used car, it starts from the depreciated price at the age you specify — skipping the steep early years.

TCO includes: purchase price minus residual value (depreciation), sales tax, annual ownership costs (insurance, maintenance, fuel, registration, repairs — by vehicle class), and finance interest on your loan. The depreciation cliff chart shows residual value year by year so you can see exactly when and how fast each car loses value relative to what you paid.

The HYSA opportunity value shows what the price difference could grow to if invested at your stated APY — making the full financial picture visible, not just the sticker prices.

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→ Is It Cheaper to Buy a New or Used Car?

Frequently Asked Questions

What is the depreciation cliff and why does it matter?
A new car loses roughly 20% of its value in the first year alone — that's the 'cliff.' On a $40,000 vehicle, year-one depreciation costs you about $8,000 before you've put 15,000 miles on it. The used car buyer who picks up that car at age 1 or 2 skips this cliff entirely, buying at a price that already reflects it.
Where is the 'sweet spot' for a used car?
The 3-year-old certified pre-owned (CPO) window is widely considered the value sweet spot. By year 3, a mainstream vehicle has absorbed 40–50% of its total lifetime depreciation, yet it's young enough to come with manufacturer-backed CPO warranty coverage and low maintenance risk. The calculator lets you dial in any age — compare year 2, 3, and 5 to find the inflection point for your specific make.
Why does a new car cost more in finance interest?
Two reasons: the loan principal is higher (new cars cost more), and new-car loan APRs can sometimes be higher than used-car promotional rates — or vice versa. The calculator lets you set independent APRs for new and used so you can reflect what a dealer or credit union has actually quoted you. Interest on a $40,000 loan at 7% over 60 months is nearly $7,500 — compare that to interest on a $25,000 used-car loan.
Does mileage affect the comparison?
Yes. The calculator uses a standard 15,000 miles per year assumption to compute cost-per-mile for each scenario. A used car that you're buying with 45,000 miles already on it has less remaining low-maintenance life. If you drive more than average, the annual ownership costs (maintenance, tires, repairs) skew higher for older vehicles — something the TCO model captures via the ownership-cost defaults by vehicle class.
Is a certified pre-owned warranty worth paying a premium for?
CPO programs typically charge a $1,000–$3,000 premium over an equivalent non-certified used car. In exchange you get factory warranty extension (usually 2–3 years/100k miles), a multi-point inspection, and sometimes roadside assistance. If the used car age you've selected puts it outside the factory powertrain warranty, a CPO premium is often worth modeling. Enter the CPO-adjusted price in the used price override field.
When is buying new the right financial move?
New makes sense financially when: (1) you plan to hold the car 8+ years — the depreciation hit is amortized over a long time and you maximize remaining asset value at sale; (2) you're financing at a very low promotional APR (0–2.9%) that doesn't exist on used inventory; or (3) reliability and warranty are critical for your situation and the CPO premium on the equivalent used car closes most of the price gap.