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• Frank Font

Updated: Aug 15, 2021

In the following post, I wanted to analyze the possible cost difference between buying and selling used at the most optimal points in terms of depreciation vs. simply buying a used car and keeping it until you encounter any significant problems. In my example, I will be using the price of a Honda Civic LX with an MSRP of \$21,700 and the predicted depreciation stated at nerdwallet. Do keep in mind that not all cars depreciate at the same rate, and this calculation will most likely have to be considered on a car-to-car basis.

If we were to buy a used car after two years, the price of the car would have depreciated by about 40 percent, so that you would be paying an estimated cost of \$13,000. Because the vehicle would be under warranty until you sell it at the five-year mark, we can assume that the only significant expense would be oil change and windshield wiper replacement each year, with tire replacement and rotation occurring once during the time of ownership. Because the car loses 60 percent of its value within five years, we can assume that you would have been able to sell it for \$8,680, meaning that it would have cost you \$4,320 over those three years of usage without taking into account maintenance. With maintenance, the cost would increase to about \$5,060. That would bring the yearly cost to around \$1,687 per year.

If we were to buy a used car and keep it until its expected longevity of a vehicle of 200,000 miles as determined by AARP, we would have to consider a more significant number of maintenance costs. Because it is predicted that car tires will last for around 40,000 miles, as mentioned by Edmunds, over the life of the car, we would have to do about three to four tires changes, and then the windshield wipers and oil change will be done at a one year and 5,000-mile interval respectively. Due to the car's age, we will have to consider battery and brake pad replacement along with an alternator change. When looking up the cost of each, I will only consider the price of doing the changed yourself as most of these tasks except tire changes do not require expensive tools or that much car expertise. The numbers I will use for maintenance are \$90 per year in oil changes, \$40 per year for windshield wipers, and \$350 for installing and purchasing a decent set of tires every 3.5 years. The battery will have to be changed around every five years for \$200 while the brake pads at the same interval for \$150. The total maintenance over the predicted usage of 12 years would be \$3,600 in addition to the original cost of \$13,000. The yearly cost would then be \$1,083 if no significant repairs must be done. To reach a similar price per year to the previous strategy, you would have to have additional maintenance that totals \$7,200, equating to an engine rebuild and even a decent transmission rebuild.

In conclusion, it is far better financially to use a car until it starts to suffer any significant issues as even with an increase in maintenance cost, you would be able to save about \$600 per year if you were to pay cash for each of the cars and that does of course not take into account the tax you would have to pay each time you register your new vehicle which would increase the savings between both methods. You would, however, be missing out on any new technology that may come out with each new car generation, but most older model cars can be modernized with relatively cheap gadgets. For example, with a cheap car dongle, you would gain both Bluetooth, car charging, and wireless audio support for the low cost of \$25 on an older model car. If you want a rear front and rear camera, that will cost you a possible \$85 with a simple mirror dashcam.