Awhile back I saw a blog post telling readers they could save big money on a new car if they buy a last year’s model new car.
What they were referring to is the latter portion of the calendar year when dealers get the next year’s new cars and are trying to off-load last year’s new cars.
For example, this post was encouraging readers to buy a new 2017 car toward the end of 2017 because the new 2018 models are now in stock. The thought is that dealers will be willing to slash prices on the old models to move them, saving you big money on a brand new car.
Unfortunately, it’s just not true.
Well, at least the part about saving tons of money isn’t true. Dealers are definitely trying to move the unsold last year’s models, that’s why they advertise year-end closeout sales so much!
I will say this. You can save SOME money by buying a last year’s model new car, but in the end the depreciation from the new car hit still makes this option a poor financial choice.
Read on to hear why you shouldn’t buy a last year’s model new car despite the clearance savings, and what you should do instead.
Is There Really a Difference in Price?
The first reason against buying last year’s model in order to get a new car is simply because there really isn’t that big of a difference in price.
Let’s take a look at an example to illustrate this point. I just looked up the Kelley Blue Book value of a new Chevrolet Silverado 1500 LT Crew Cab, one a 2017 and the other a 2018. Both vehicles are brand new. The KBB values for each year are as follows:
MSRP – $44,300
Invoice – $41,504
Fair Price – $40,193
MSRP – $43,650
Invoice – $40,890
Fair Price – $38,927
The difference? At most a whopping $1,266.
I don’t call that big savings.
Of course, we’re heading into the latter half of 2018 and the 2019 models are rolling out, but there still isn’t a huge difference. In fact, the prices are lower for a new 2019 LT than the previous years due to Chevrolet changing their packages (now there is LT and LT Trail Boss, which is more expensive).
MSRP – $40,795
Invoice – $38,319
Fair Price – Unavailable
Long story short, you really don’t save that much money buying a last year’s model new car.
What About Discounts?
At this point you’re probably thinking I’ve forgotten about all those thousands in cash back and off MSRP that dealers advertise for model year-end closeout events.
What about that 72 months 0% APR!?
Don’t get your hopes up.
My first suggestion would be to read the fine print.
Typically, all those “savings” are only on certain models, and reserved for “well-qualified buyers” (which is another way of saying that they aren’t available to everyone).
Furthermore, these “savings” don’t really amount to much, especially when you think about it not in terms of how much you’re saving, but how much you’re spending.
Sure, you “saved” $1,500 off MSRP, but spent $42,000 in the process!
I will admit, the offer of 0% APR for 72 months is especially nice (it means you won’t pay interest for 72 months), but again, do you really need to spend $42,000 when you could get a nice used car for much cheaper?
In this case, the “savings” aren’t worth it because you have to spend so much to get them. You’ll come out way ahead buying a 5-year old vehicle at half the price.
You’ll Still Have the New Car Hit
If those reasons aren’t enough, my final reason for avoiding a last year’s model new car is due to the new car hit (explained in detail in this post on new cars). Yes, even though it’s last year’s model, IT’S STILL A NEW CAR AND WILL BE IMPACTED BY THE NEW CAR HIT.
In fact, it will be impacted MORE by the new car hit because technically it’s already a year old even though it’s brand new.
This means that your new ride will have already depreciated about 10%, plus up to another 11% when you drive it off the lot, and will continue to depreciate up to 15% every year until it’s 10 years old.
In other words, you’ll lose more in value when you drive off the lot than you saved.
Not worth it.
What You Should Do Instead?
So, should you buy last year’s model new car?
It’s still new, so it’s still going to cost a lot and depreciate at the same rate (actually faster because it’s already a year old), with most of that coming in the first several years. The potential savings in price are just not enough to warrant purchasing it.
So, what should you do instead to TRULY save big money?
If you’re really worried about reliability and want as new as possible, the sweet spot is to buy a 2-3 year old certified vehicle. These cars are pre-owned, but usually still have low miles and are under dealer or manufacturer warranty.
But the best thing about them is that you avoid the new car hit!
Let’s look at our example of the Chevy Silverado. On KBB, the fair purchase price for a certified pre-owned 2016 Silverado (same exact model) with 39,287 miles (average for this model) is about $32,533.
Now we’re starting to see some savings ($7,660 compared to the fair price of the new 2018 LT).
While a certified pre-owned car is a good option for those worried about possible repairs and having low miles, our recommendation for saving the most on a vehicle purchase would be to go for a nice used vehicle.
By used, we generally mean 3+ years old, but the older the vehicle the more you’ll save on purchase price. A good round number is 5.
A 5-year old vehicle has depreciated enough to be more manageable in price, but is still new enough to be reliable, have lower miles, be in good condition, and have newer features.
Basically, it’s not brand new but close enough for government work.
Keeping with our example of a Chevy Silverado 1500 LT Crew Cab, a 2013 with typical mileage of 74,493 would run you about $24,813.
Now we’re talking big savings! ($15,380 worth!)
And you can save even more by buying an even older vehicle, but you get the point.
Moral of the Story
Is buying a last year’s model new car worth it?
The sweet spot for most people would be to buy a 2-3 year-old certified used car, with low miles and often still under warranty.
But if you really want to save big on a vehicle purchase, look for a nice used car in the 3-5 year range, or even older. After all, buying a nice used car is really the only way to get a good deal on an item that depreciates so much over its lifetime.
Talk about Money Saved.