The economic case for a used car

Assuming that the average new car loan is 65 months, interest rate 4%, and a total purchase price of $28,000. Your payment would be $479.83 a month. Over the life of the loan you would pay $3,188 in interest. We also need to consider sales tax. Assuming a 6.5% sales tax rate you are looking at approximately $1,700 in sales tax.

So you are looking at spending a total of $4,888 on taxes and interest. It is even worse if you live in a state that has a yearly property tax on the value of your car.

My proposition is that for $4,888 one can buy a great used car that might last three to five years. I am currently in the market for a new to me used car. I plan to monitor the cost of owning an older used car. Edmunds Debt Free Car Project performed a similar study of the costs of driving an under $5,000 used car.