One Car Or $2 Million?

Cars are more expensive than ever and new ones are shockingly so. As of June 2025, the average new car price was $48,699, and the average interest rate on a new car loan was 6.73% (Q1 2025). That’s no small sum for most Americans, myself included. Given the cost, it’s fair to say a car will likely be one of the largest purchases many of us make in our lives.

The Truth

Cars have become significantly more expensive over the last five years. Interest rates are higher, and loan terms are longer than ever before. But why does this matter? Because as all these things increase, so does the opportunity cost of owning a new car.

Opportunity Costs

As discussed in a previous post, opportunity cost is “the loss of potential gain from other alternatives when one alternative is chosen.” I’d argue a new car purchase is one of the biggest financial drains when it comes to this concept.

A Little Math

Let’s walk through a scenario to see just how much a single car purchase can affect someone’s long-term financial picture.

Meet Mike

Mike is 23. He just graduated from college and landed his first full-time job. He decides to treat himself and buys his dream car—a brand-new 2025 Ford Mustang GT. The car costs $48,699, financed at a 6.73% interest rate over 72 months. He puts $5,000 down.

After taxes, fees, and interest, Mike ends up paying $62,299 for his Mustang. That includes $10,263 in interest alone.

By the time Mike is 29 and finishes paying off the loan, the car is worth about $33,000.

Now let’s imagine a different choice: instead of buying the new Mustang, Mike buys a $5,000 used car and invests the difference. At a 10% annual return, that investment could grow to $77,000 by age 29.

And if Mike simply lets that money sit and grow until retirement, without ever adding another dollar—by age 65, it could be worth $2.38 million. And If Mike did purchase a Mustang at 23, it’s very likely he no longer has it, not to mention the $2.38 million he missed out on. 

A Different Fate

But let’s say Mike still wants a Mustang—just not brand new. He finds a 2019 Ford Mustang Ecoboost for $17,000. He finances it at 11.87% for 72 months, puts $5,000 down, and ends up paying $24,067 in total (including $5,474 in interest, taxes, and fees).

By the time he’s 29, that car is worth around $11,000. But here’s the kicker—Mike saved $531/month by choosing this car over the new one. He invested the difference, and by age 29 he now has $51,400 plus a solid used Mustang.

If he never adds another penny to that investment, by 65 he could have $1.59 million. A slightly older car but a smarter financial decision? Totally worth it in my opinion. 

We have two people who both bought and enjoyed Mustangs in their 20’s. Except one ends up with memories and $1.5 million and one only gets the memories. Who would you want to be? 

My Belief

As you may know, I love cars. I wrote this post because I think it’s an important topic—especially given how much of our net worth and cash flow can be tied up in our vehicles.

You can change the examples, swap the models, or adjust the numbers, but the core idea remains the same: a single car purchase can drastically alter your financial future.

What saddens me is seeing so many of my peers, financing brand-new vehicles without realizing the long-term cost. I believe if many of them knew just how much it was costing them, they wouldn’t want to do it. 

My Sweet Spot

In my opinion, the current sweet spot is somewhere between $10,000 and $20,000. In this range, you can find almost anything.

Want a sports car? You got it.

Need a family SUV? No problem.

Here’s how I break it down:

• $10k–$20k – Reliable, still nice, can last a long time 

• Under $10k – Still possible, but deals are harder to find. Cars are likely older and not as nice. 

• Under $5k – Beater territory. Riskier, Sometimes worth it, especially if you can do your own work. 

• Over $20k – Sure, you can get anything—but do you really need to?

What I Plan to Do

I’m lucky that I don’t have expensive tastes in cars. My favorite era is 2000–2009. A brand-new Mustang GT doesn’t appeal to me, and I have no plans to buy anything new.

My current newest car is 19 years old—and honestly, I love it. If I ever finance a car, it’ll be to experience what it’s like to have a car payment (though I’m sure I’ll hate it). Maybe if interest rates are low enough, I’ll go for it. Because sometimes I consider buying a newer used car, something more reliable that I don’t have to think about. Maybe by the time I’m 30, I’ll grab something newer just for the peace of mind.

For now, I’m happy with my simple, mostly analog cars. Getting into a 2024 or 2025 model with all the tech and gizmos just makes me feel... old. I’m really dreading the day I have to upgrade.