Everyone has a different opinion about how long you should keep your car. I’ve known people who buy a new car every couple years seemingly out of boredom. Others have a set amount of time, like 5 or 10 years until they buy their next car. Finally some people drive their cars into the ground. Let’s see which strategy makes maximum “cents” (see what I did there?).
In case you didn’t know, cars are a depreciating asset which means that they lose money over time. You’ve probably heard that cars lose value when you drive them off the lot. According to Edmunds, a leader in automotive information, a car will lose about 9% of its value as soon as you drive it off the lot. Here is the breakdown of depreciation for each of the first 5 years:
- Year 1: 19%
- Year 2: 12%
- Year 3: 11%
- Year 4: 9%
- Year 5: 9%
As you can see above, cars start depreciating quickly but the depreciation slows down over time. For these examples I will use the car depreciation calculator at Money-Zine.
New Car Every Two Years
Before I even analyze this scenario I have to mention that this seems really irresponsible unless you are independently wealthy and have money to spend. Lets say a man named Larry decides to buy a $20,000 new car every 2 years. If it loses 31% of its value after 2 years it would be worth $13,800. Maybe Larry justifies his new purchase because he doesn’t have to pay for any maintenance on his cars. He just trades it in and buys a new $20,000 car in a state with a 5% tax rate. After 60 years of driving, Larry would have spent $1,053,284!
New Car Every 5 or 10 Years
Let’s perform the same example for people who purchase cars every 5 or 10 years. For this example we will call them Sara and Fred respectively and let’s also assume that they spend $500 in maintenance costs every year they own their cars. Sara will end up spending $395,190 and Fred will end up spending $184,730 over 60 years of driving.
Drive Cars Into The Ground (Every 20 years)
Finally, lets examine the group of people that decides to drive their cars into the ground and purchase a new car every 20 years. For this example we will increase the maintenance costs per year to $1,000. Emma will be the fictitious character that eschews big, expensive purchases. After 60 years of driving, Emma will have spent $126,584.
Here is where we will take a look at how much money each of the characters has spent over their lifetime.
- Larry: $1,053,284 or $17,555 per year
- Sara: $395,190 or $6,587 per year
- Fred: $184,730 or $3,079 per year
- Emma: $126,584 or $2,110 per year
From these results it is pretty clear that you should try to hold onto your car for as long as possible. Not everyone will want to keep their car for 20 years. Maybe the maintenance expenses start to become unbearable. However, this is the reason to look into reliability when buying a new car. You should be looking to purchase something that has the potential to last 20 years. Note, the previous examples did not factor in the higher cost of insurance for new cars which would have favored holding on for long periods of time.
Readers, do you agree with these examples? How long do you expect to hold on to your car?