Used Car vs New Car 5-Year Cost Comparison

A new car loses 20-30% of its value the moment you drive it off the lot, and another 15-20% in year one.
A 3-year-old used car has already absorbed that initial drop and depreciates much more slowly from there.
This is the single biggest reason used cars usually win the total-cost-of-ownership math.

The framework:

5_year_cost = (purchase_price - resale_value) + finance_cost + insurance + repairs + maintenance

A worked example.
New 2026 Toyota RAV4 at $35,000.
Trade-in value after 5 years: about $20,000 (43% depreciation total).
Finance: $35K at 7% over 5 years = about $6,600 in interest.
Insurance: $1,800/year × 5 = $9,000.
Maintenance and repairs: $1,200 over 5 years (mostly oil and tires; warranty covers other items).
Total 5-year cost: 15,000 + 6,600 + 9,000 + 1,200 = $31,800.

Same model 3 years old, 36,000 miles, $22,000.
Trade-in after another 5 years: about $11,000.
Finance: $22K at 7.5% (used rates higher) over 5 years = $4,400 interest.
Insurance: $1,500/year × 5 = $7,500 (older car, lower premiums).
Maintenance and repairs: $4,500 over 5 years (out of warranty for most years, more brake/tire/timing-related items).
Total: 11,000 + 4,400 + 7,500 + 4,500 = $27,400.

The used car wins by $4,400 over the 5-year window in this example.
That gap widens for trucks and luxury cars where new-car depreciation is more severe.
A 3-year-old BMW 3 Series typically beats a new one by $10,000-15,000 over the same 5-year ownership.

When new actually makes sense.
If the new car has a major warranty or maintenance package included (some Hyundai/Kia models, Toyota’s 2-year/25,000-mile maintenance), the maintenance line shrinks.
If interest rates on new are much lower than used (manufacturer 0% APR promotions), the financing line flips.
And if you keep cars 10+ years, the longer remaining useful life of a new car can pay back more than the depreciation gap.

Three details people miss.
The “cheapest mile” car is one bought used for cash and kept until major repairs exceed the car’s market value — typically 12-15 years and 200,000 miles.
Financing a used car at high interest can wipe out the depreciation savings; cash or a low-interest loan is essential to make used economics work.
And reliability matters more than initial price: a $25K used Subaru is a worse deal than a $30K used Toyota if the Subaru has $8,000 of head-gasket repairs in its future.

Insurance is the line that surprises people.
A new car often costs 30-50% more to insure than a 5-year-old version of the same model, because both collision and comprehensive premiums scale with the car’s market value.
Over 5 years that gap is $2,000-5,000 in pure insurance savings on the used choice.