While it can be tempting to buy a new car when it comes time to replace your current ride, it can also be one of the worst financial mistakes that you can make. Yes the dealers will tell you that leasing cost you less, or that they can get you a cheap loan.  But none of that makes up for the cost of the car itself. Buying a new car means that you’re paying too much for something that you can find a lot cheaper. In the short term, this means that you can have a lower monthly payment and be done paying your car off sooner than you would have been if you had bought a new car. Long term, you’ll make more money when it’s time to trade in your car, and have the resources to buy your next car with cash.

New cars come with no mileage and a good warranty, but a late model used car will typically come with low mileage and in many cases a warranty that’s just as good. In fact, cars that are just 3 years old typically cost about half of what a new car of the same make and model would cost. For example, a brand new economy car could be purchased for $16,000.  In the first year, that car will lose $6,500 of value, and by the third year, it will only be worth $7,800.  If you bought it at the end of that third year and sold it three years later, it would still be worth $5,400. So, buy a new car and keep it three years: it costs you $8,200.  Buy a used car and keep it three years: it only drops $2,400 in value.

The cost difference between a new and used car is even more significant when you consider that most late model used cars have the same features of their new counterparts. In many cases, the mileage on these cars is less than 50,000. At many dealerships, it’s even possible to find used cars that have less than 10,000 miles on them, yet they have a big discount on the price. In the case of these very low mileage cars, the dealership certified used car warranty will extend beyond the original factory warranty. This means that by buying a used car, you’ll save money on the purchase and you won’t have to worry about maintenance for the next several years.

In addition to saving money every month on your car payment, you’ll also see a lot more money back when it comes time to sell your car. By buying a late model used car and taking good care of it (a task that will be a lot easier by saving some of the money from your lower car payment) you’ll be able to sell the car at around the same time you would have sold your new car. Because you paid so much less for it when you bought it, you’ll make more money back on the sale.

Because buying used means that you have a lower payment every month, many people are able to get their car paid off quickly. That gives you not only more cash in your pocket, but some flexibility to use loans like an auto title loan to cover an emergency cash need.

Bottom line, new cars smell great, but avoiding the temptation means big savings to you budget.