Used Car

Why is It More Profitable to Buy a Used Car Rather Than a New One?

The allure of a shiny new car is strong, but the reality is buying used will save you thousands while still getting you where you need to go. Sure, the new car smell is nice and no one else has broken in the seats, but a used car holds its value far better over time.

While a new car depreciates by thousands when you drive it off the lot, a used car has already taken that big hit. And despite what car salespeople want you to believe, modern cars are built to last well over 100,000 miles, so buying a 2-3-year-old model with under 50,000 miles can feel good.

Used Cars Depreciate Much Slower Than New Cars

Used cars depreciate at a much slower rate than new cars. When you drive a new car off the lot, it loses its value. According to Kelley Blue Book, a new vehicle loses 11% of its value the moment you buy it and will lose about 20% of its value each year after that.

On the other hand, used cars have already taken a big initial depreciation hit. So, while a 3-year-old used car may continue to depreciate by 10-15% each year, it has already lost 30-40% of its initial value. Buying used can avoid paying for those initial years of fast depreciation. This means a lower purchase price and less depreciation expense overall.

Another benefit of buying used is that you can often get a loaded vehicle with many options and features for the same price as a new base model. Options on new cars also depreciate quickly so you can get thousands of dollars of options on a used car for pennies on the dollar.

Insurance costs are also typically lower for used cars versus new cars. Lower costs across the board mean more money in your pocket each month and over the vehicle’s lifetime.

While a new car has advantages like the new car smell, latest styling, and advanced safety features, a used car can be a much smarter choice financially. Do your research, get a vehicle history report, take it for a thorough test drive, and consider getting a trusted mechanic to inspect it. If you go into the deal with realistic expectations about the vehicle’s condition and costs, buying used can save you much money versus buying new.

Lower Registration and Licensing Fees


When you buy a used car instead of a new one, you’ll pay lower registration and licensing fees. New cars lose value when you drive them off the lot, but used cars have depreciated, so fees are based on the lower value. This can save you hundreds of dollars per year.

In most states, registration and licensing fees are based on the vehicle’s value or weight. Since a used car is worth less, the fees are less. For example, if a new $30,000 sedan has a registration fee of $500, a 3-year-old model of the same vehicle might only cost $350 to register because its value has dropped to $20,000.

Over the lifetime of the vehicle, those annual savings add up. If you keep the car for 10 years, you could save $1,500 or more on registration and licensing with a used model versus a new one. That’s money in your pocket that can be used for insurance, gas, maintenance, and other vehicle expenses.

Some states also charge initial title and licensing fees when buying a vehicle. These are also typically lower for used cars due to their lower selling price. Between the initial fees and ongoing annual registration/licensing renewal fees, buying used can save you quite a bit compared to new.

The bottom line is that used cars have a lower upfront cost and mandatory annual fees. So if you want to minimize the total cost of owning a vehicle, opting for used over new is a win-win situation. Over time, those savings will put thousands of dollars back in your budget for the things that matter.

Lower Insurance Costs


Buying a used car instead of a new one can save you money on insurance costs. Used cars are cheaper to insure for several reasons:

The Vehicle Value is Lower

Insurance companies determine premiums partially based on the value of the vehicle. The less it’s worth, the less it costs to insure. New cars lose value quickly, so you pay more upfront for insurance to cover that initial cost.

Collision Coverage

Collision insurance covers the value of repairs in an accident. Used cars have lower repair costs since parts are cheaper and there’s less advanced technology to fix or replace. You can drop collision coverage altogether on an older used car to save a lot.

Comprehensive Coverage

Comprehensive coverage insures against damage from events like fire, theft, vandalism, or natural disasters. The cost is directly tied to your vehicle’s value. Comprehensive coverage will cost much less for a used vehicle versus a new one.

Bundled Discounts

If you have homeowners or renters insurance with the same company, bundling a used car policy together can qualify you for a multi-policy discount. The discount may be larger since the used car policy is more affordable.

Safe Driver Discounts

The longer you’ve been driving, the more you can save with a safe driver discount. Buying used means you’ve likely been driving longer and can earn the maximum discount.

You’ll pay less for used car insurance. The specific savings will vary based on factors like the vehicle make and model, your coverage amounts, driving history, and location. But generally, you can expect to pay at least 10 to 50 percent less to insure a used vehicle than the brand-new one. The insurance savings, combined with the lower upfront cost of a used vehicle, add up to major profits over buying a new one.

Save Money by Reducing Interest Paid


Buying a used car rather than a new one can save you significant money in the long run. One of the biggest ways it saves you money is by reducing the interest you pay on an auto loan.

The interest is calculated on the full purchase price when you purchase a new vehicle. For a $30,000 new car, you could pay $5,000 or more in interest over a 5-year loan, even with a reasonable interest rate. However, when you buy a used car, the interest is calculated only on the used car’s lower selling price. For example, if you buy a 3-year-old version of that same $30,000 car for $22,000, the interest over the same 5-year loan period would only be around $3,500.

That’s a savings of $1,500 that goes straight into your pocket. The older the used car and the lower the price, the less interest you’ll pay for the same loan term. You can also often get approved for a shorter loan period for a used car, like 3 years instead of 5, reducing the total interest paid.

In addition, used cars depreciate at a much slower rate than new cars. The steepest depreciation for vehicles occurs in the first few years. After 3-5 years, the depreciation levels off significantly. This means a used car may only lose 10-15% of its value over the next few years, while a new car can lose 60% or more over the same period. The slower depreciation of the used vehicle also allows you to owe less than the car is worth for more of the loan period.

Buying used instead of new can save thousands of dollars a year when you add up the money saved on interest charges and depreciation. For many buyers on a budget, purchasing a used vehicle is the most profitable option.

How to Get Top Dollar for Your Used Car ─ Cash for Used Cars


To get the most money for your used car, you must make it shine inside and out. Give your car a deep clean, wash and wax the exterior, vacuum the seats, and wipe down the dashboard and door panels. Make any necessary repairs to dents, scratches, or mechanical issues.

Price it Right

Research Kelley Blue Book and NADA Guides to determine a fair asking price for your vehicle based on the make, model, year, mileage, condition, and optional features. You want to price it competitively but don’t go too low. It’s easier to come down on your asking price than to try and raise it later.

Advertise Everywhere

The more potential buyers see your car, the better. Post it on Autotrader, eBay, Craigslist, Facebook Marketplace and Nextdoor. Include photos from different angles, and list all the key details and your asking price. Also, put a “For Sale” sign in your car window with your phone number for people driving by.

Let People Inspect It

Allow interested buyers to view and test drive your car. Be prepared for them to scrutinize it closely, so make sure there are no surprises. Have your vehicle’s history report, service records, and any receipts for recent work done handily. Be flexible with scheduling test drives and let people take their time looking it over. The more transparent and accommodating you are, your car will seem more appealing.

Negotiate the Best Deal

Once you have an interested buyer, be willing to negotiate to arrive at a fair price you’re both satisfied with. Don’t get emotional—focus on the facts and figures. You may need to compromise a bit but don’t exceed the minimum you’re willing to accept. Get everything in writing on a bill of sale, including the make, model, VIN, sales price, date of sale, and signatures from both the buyer and seller.

Following these tips will help ensure you get top dollar for your used vehicle. Price it right, advertise it well, let people fully inspect it, and be ready to negotiate—that’s the recipe for success in any private-party used car sale.



You’ll save a bundle of cash upfront and avoid the huge depreciation costs of a new vehicle. Your bank account will thank you; you can feel good about making a more environmentally-friendly choice.

You may miss out on that new car smell, but you’ll be satisfied knowing you got a great deal. With lower costs, fewer worries, and more money in your pocket, choosing a pre-owned ride is a win-win. Why buy new when used will do?