The depreciation cliff
iSeeCars’ 2024 study of 800,000+ vehicles put the average five-year depreciation at 45.6%. AAA pegged the all-in cost of owning a new car in 2024 at $12,297 per year, with depreciation alone making up almost half of that.
The Edmunds Q3 2024 used-car report showed the average new car costing $47,542 vs $27,177 for a 3-year-old used car — a $20,365 gap, the largest in history. That gap is the price of the depreciation curve’s steepest stretch.
Over 5 years, going used saves $13,932 total wealth.
That’s $8,699 in direct cost savings plus $5,233 in compound growth on the price difference.
- Depreciation
- $18,209
- Fuel
- $7,000
- Insurance
- $9,000
- Maintenance
- $2,500
- Depreciation
- $9,009
- Fuel
- $7,000
- Insurance
- $7,500
- Maintenance
- $4,500
- Direct savings
- $8,699
- Opportunity cost
- +$5,233
- Total wealth gap
- $13,932
- Years compared
- 5 yr
The opportunity cost nobody mentions
The new-vs-used gap is real money. Invested in a basic index fund at 7% real return, a $13,000 gap becomes about $5,200 of compound interest over 5 years on top of the principal. Over a working life of upgrading cars every few years, the same decision repeats and stacks. Dave Ramsey’s often-cited estimate: the average US car payment, invested instead, would top $6 million by retirement.
That’s not a tip to never buy new — it’s a reminder that the comparison isn’t “new car vs used car.” It’s “new car vs (used car + everything else you could do with the price difference).”
When buying new actually makes sense
Long ownership horizons (10+ years) flatten the depreciation penalty — you’re going to drive it through the bottom of the curve either way. Specific situations also tilt the math: EVs with rapidly evolving range/charging, vehicles where used inventory is terrible (post-2020 supply shock), warranty-driven peace of mind for someone who can’t deal with surprise repair bills, or commercial uses where reliability is non-negotiable.
For most people, most of the time, the math says: buy 2–4 years used, drive it 8+ years, invest the rest. Run your own numbers above.
See it compound
The price difference from one car decision compounded over 30 years is genuinely life-changing. Plug the same number into the compound interest calculator with a 20–30 year horizon to see where it actually ends up.