last year's model new car

Should You Buy a Last Year’s Model New Car?

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.

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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:

2018

MSRP – $44,300

Invoice – $41,504

Fair Price – $40,193

2017

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).

2019 LT

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?

NO!

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?

Not really.

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.

 

 

 

 


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Tawnya Redding

Tawnya is an elementary special education teacher by day and co-blogger at Money Saved is Money Earned by night. She holds an Honors BS in Psychology from Oregon State University and an MS in Special Education from Portland State University. She has had a pretty successful writing career, first as a writing tutor at the Oregon State University Writing Center, and in recent years, as a freelance writer. Tawnya and co-blogger Sebastian have a wealth of knowledge and information about personal finance, retirement, student loans, credit cards, and many other financial topics. They teach people how to save money, make money, and understand money.

15 thoughts on “Should You Buy a Last Year’s Model New Car?”

  1. I could easily afford brand new cars but for the reasons you point out I prefer to go old. My current car is three months old to me but eleven years old in reality. New it would cost the same as your truck example but I only paid $7,000 for it! I’m not sure if it’s even depreciating at this point. But it runs like new and looks great.

  2. Great tips. We’ve never bought a new car. We’ve found that the best value for money is to buy a 3-year-old car that was previously owned by a car rental company. Their prices are low because of the mileage and they’ve been kept in good condition by the car companies..

    1. Good point! We’ve never bought a car from a rental company simply because we tend to look for a little older and cheaper options. However, for those looking to get a 2-3 year old car that could be a great option.

  3. I’m a little torn because the personal finance blogger in me knows I should want to buy an (at least) slightly used car for my next car, but I know I kind of want a new car. I’m currently towing the line by putting away money for said new (or newish) car slowly. If my current car gives out before I reach the amount for a new car anyway, then I guess I won’t be getting a new one. If I reach the new car amount, then I’ll have to think about it again. I drive my car forever. I’m going on 10 years with my current car and am hopeful I can get maybe 10 more out of it – and part of that is knowing I’ve been 100% on top of maintenance since it came off the lot.

    1. Driving it until it gives out is really the only way to get your money’s worth with a new car. If you plan on driving it forever then it’s not as big of a deal. However, most are looking to trade their car in (or change it) every couple of years and are hemorrhaging money in the process.

  4. We bought our first new car last year, despite being on track to pay everything else off. Honestly, after having several unreliable used cars, it was nice to have something completely covered for a few years. It’s not a cheap payment, though, and I really wish we’d considered a 2-3-year-old used car like you mentioned above. Next time we will do a little more research!

    1. Thank you for sharing your experiences. Many people are scared off by used cars precisely because of what you described. However, you can still get nice used options that are under warranty or may have a dealer warranty option that you can buy for peace of mind. Either way, you’re still saving money over a new car.

  5. Great article on why its definitely better to purchase a certified used vehicle over a new one. I was faced with this dilemma coming out of college when my old beater finally kicked the bucket. I am happy to announce I chose the second hand several years older, not to mention cheaper option. I am still very pleased with my decision to this day. NO REGRETS!!

    Thanks for the great insightful read.

    1. Happy to hear that! So many people choose a new car despite the cost because they’re afraid of used cars. Obviously you have to do your due diligence, but the money saved is worth it.

  6. I bought a used Nissan Leaf in 2015 that was a 2013 model and it has been working great for the past several years. I am very happy with it. I’m not under the illusion that charging is free because it does add to my electric bill, however the total cost is less than the cost of gas by far.

  7. You hit the nail in the head in the comments when you responded with: “Driving it until it gives out is really the only way to get your money’s worth with a new car. If you plan on driving it forever then it’s not as big of a deal.” When calculating the yearly cost after 10 years of ownership, a savings of $3000 to $4000 nearly disappears, especially if you can get a good deal on last year’s model. My local dealership is selling 2019 SUV’s right now (today is March 7, 2020) for $4000 less than the same 2020 model.

    After 10 years, last year’s new model ends up costing almost the same per year, if you can resist upgrading until it gives out.

    As a car buyer, you can get your cake, and eat it too–but you’ll need to eat the same cake for at least 10 years.

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