New vs used: which car gives you better value?

Sticker price is not the comparison

A new $40,000 car and a three-year-old $25,000 version of the same car aren’t $15,000 apart. They’re separated by depreciation, warranty coverage, maintenance trajectories, and resale value at the end of your ownership — and once you account for all of those, the gap is often much smaller than the sticker prices suggest.

The right comparison is total cost of ownership over the period you actually plan to keep the car. That’s the only number that determines which option costs you less.

The depreciation curve dominates

Cars don’t depreciate evenly. A typical petrol car loses 20–25% of its value in year one, another 12–15% in year two, then settles into 8–12% per year for the rest of its life.

This shape has a profound effect on the new-vs-used comparison:

• Buy new, sell after 3 years: You’ve absorbed the steepest part of the curve. About 40–50% of the purchase price is gone in depreciation.
• Buy 3-year-old, sell after 3 years: Someone else absorbed the steepest part. Your depreciation cost is about 25–30% of your purchase price (which is itself half of the new price).

The 3-year-old sweet spot exists for exactly this reason. The vehicle is past its steepest depreciation but typically still has at least one year of warranty and several years of mechanical reliability. Used cars older than 7–8 years invert this — depreciation slows, but maintenance costs accelerate as components wear out.

Warranty savings are real but bounded

A new car typically comes with 3–5 years of bumper-to-bumper warranty. During that period, almost all maintenance and repair costs are zero (only servicing isn’t covered). For a used car of the same model, that warranty is gone.

A reasonable estimate of the warranty value is $500–$1,500 per year for a mainstream sedan or SUV — what you’d otherwise spend on servicing, brake work, and the inevitable warranty claim or two. So a 3-year warranty is worth $1,500–$4,500 in present-value maintenance savings.

That’s meaningful, but it’s rarely enough to close the depreciation gap. New cars depreciate $5,000–$10,000 a year for the first three years. A $1,500/year warranty saving offsets some of that, but not all.

Maintenance after warranty: where used cars catch up

Once you’re past the warranty period (or buying used to begin with), maintenance becomes a meaningful annual cost. Year-by-year:

• Years 1–3 (post-warranty): $500–$1,500/year. Routine servicing, brake pads, basic wear items.
• Years 4–7: $1,000–$2,500/year. Tyres, brakes, smaller component failures, electronic gremlins.
• Years 8+: $1,500–$4,000/year. Major components start failing — alternators, water pumps, suspension bushes, sensors.

This is the curve that bites used-car buyers. Not the depreciation — the maintenance. By the time you’re driving a 12-year-old car, you might be spending more on repairs than you would on a payment for something newer.

Financing changes the math materially

A common pattern is to finance the new car (because the new price is high) and pay cash for the used car (because the used price is manageable). When that happens, financing interest gets added to the new car’s true cost — often $3,000–$8,000 over a 5-year loan.

If you finance both options at the same rate, the comparison stays clean — financing scales with purchase price. If you finance only one, the comparison shifts, and usually toward the cash option.

The honest comparison includes financing. The model treats it as a precomputed total interest figure that gets amortised across the ownership period.

Where the answer lands

For most ownership horizons of 4–7 years, the math usually favours a 2–4 year old version of the car you’d otherwise buy new. The sweet spot has gone past the steepest depreciation, still has decent reliability, and (often) some warranty left.

For longer horizons of 8+ years, the math tilts toward whichever option you’re more confident in for reliability — usually new, because mechanical failures in older cars become a wildcard.

For very short horizons (under 2 years), neither buying option is great. Leasing or even renting tends to win because both buying paths leave you exposed to the highest part of the depreciation curve.

What the model doesn’t capture

The new-vs-used calculator deliberately isolates the financial decision. It doesn’t model:

• Reliability variance. Used cars vary widely. A well-maintained one beats a neglected one regardless of age.
• Tax treatment. Sales tax, registration fees, and any business depreciation rules vary by jurisdiction.
• Fuel and registration. These are roughly the same for both options of the same model — the calculator strips them out so the comparison is about depreciation and maintenance, where the options actually differ. Pair with the total ownership cost calculator for the full picture.
• Time cost. The hours spent finding a good used car aren’t free.

Next steps

Use our new vs used calculator to model the depreciation, warranty, and maintenance trade-off with your own numbers. The total ownership cost calculator covers fuel, registration, and the other shared costs. To explore depreciation curves on their own, the depreciation calculator projects residual values year by year.