Whether an old car breaks down, a child leaves for university, or tastes simply change, the time eventually comes to put a different vehicle in the driveway. When that happens, one of the first questions a prospective car owner will ask is: should I buy a new car, or is it a better deal to buy used?
This is a complicated question with considerations that can change from one car buyer to another or even between different life stages or circumstances. Those who have been through the process of choosing a new-to-them vehicle will know that a lot of value is lost early in car ownership as new car prices often drop significantly once a car has been driven away from a dealer. But used cars aren’t always cheaper by default, either: if you don’t know what to watch for, the increased cost of upkeep or the higher monthly payments and interest rates on used car loans can add up to a surprising amount.
Here are some factors to consider when deciding whether a new or used vehicle is right for you when you're ready to make your next car purchase.
Buying a New vs Used Vehicle in Canada: Is One Better than the Other?
Reasons to Buy a New Vehicle
Many of the advantages of buying a brand new car revolve around convenience, peace of mind, and a desire to own a car with the latest and greatest technologies. Do you value the ability to give your new car some customization with your own choice of available options? Do you value the peace of mind that comes with benefitting form the full length of the manufacturer warranty? Or does the idea of the availability of benefits such as roadside assistance – which may be thrown in as part of the deal – appeal? Here are some of the other top incentives to choose to buy new models:
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You need your payments to be predictable. A used car may cost less up front, but once its warranty runs out it could spring costly repairs on its owner with little notice. If you don’t have much room in your monthly budget for surprises, you might be better off opting for a new car with a predictable schedule for your car payments and a factory warranty that will cover the cost of unscheduled repair work at a dealership for the first few years of ownership, leaving you to cover simpler work like oil changes on a regular schedule.
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You find a low-to-zero interest rate. Aside from depreciation, one of the most significant sunk costs on car buying is the interest payment that goes into borrowing or leasing. If you come across an interest rate of 1% or even 0% for an auto loan, you may run the numbers and find that buying a new car with a lower interest rate will lose you less money in the long run. This is because a used car might come with a lower price tag, but to finance it may require a loan with a higher interest rate. Over the loan term, you might find the pre-owned car ends up costing you more.
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You care about having the latest safety features. If modern safety features are an important factor for you, you’ll want to consider a new vehicle, or at the very least a late-model used vehicle. Back-up cameras became legally mandated in Canada in May 2018, so older vehicles may not have them installed. Other features such as collision mitigation, blind spot monitoring, and rear seat reminder systems are more commonly found on vehicles at an affordable purchase price today than they were even two to three years ago.
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You care about fuel efficiency. This is a relative measurement, and it’s a different conversation if you’re weighing a new pick-up truck versus a used hybrid, for example. But on a comparison of similar models, the new car will either have an engine with updated technologies to help it run more fuel efficiently, or at the very least it will just run more cleanly than an older model by virtue of its age. How much of a difference this would actually make to your fuel spending each month could be negligible depending on the vehicle in question, but it’s a point worth considering if being eco-conscious is important to you.
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You want the latest technology. If you’re the person who lines up outside the electronics store when a new smartphone or video game system is being released, you might get enough joy out of having the latest features and that new car smell to justify the cost of a new vehicle. Swanky features that can currently only be found on the newest cars like Mercedes-Benz’s augmented reality navigation or the new 3D instrument cluster being offered on the Genesis GV80 can add a lot of cachet to a purchase.
Reasons to Buy a Used Vehicle
Frugality is the primary reason that leads people to buy used vehicles. That makes sense in most respects, but it is important to make sure you’re calculating that frugality properly before making an important financial decision. The best used cars can offer more variety than you’ll find in the new car market as well as a lower sticker price, too. Here’s a look at some reasons why you might choose to buy used:
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You want to pay less up front. This is stating the obvious: a used car costs less than a new one. But there’s more to that calculation than meets the eye in that you’ll need to pay sales taxes on your purchase no matter whether you buy new or used, and lower up-front cost brings the cost of that sales tax down as well. Do be aware, however, that personal finance lenders might offer more expensive terms with a used car, which will partly offset the benefit over the higher price of a new car. That being said, a large down payment could take some of the sting out of that.
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You want someone else to pay for the car to depreciate. A vehicle’s depreciation is the amount of the car's value that is lost over time. A car bought brand new loses approximately 10 percent of its resale value almost immediately after being driven off the lot, and it loses another 10 percent after the first year of ownership. When you consider that those percentages look like on today’s vehicles, passing that depreciation cost off to someone else saves a lot of money.
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You can get more car for less money. If you’ve got a strict budget of $60,000, you can buy a well-equipped new SUV for that amount of money, but you can also buy you a similarly equipped luxury SUV that’s two or three years old, which gets you into a status brand potentially with better equipment for a lower cost. (However, it’s important to note that a luxury car generally comes with higher maintenance costs, so this isn’t necessarily a cost-saving measure overall unless owning a premium-brand vehicle is important to you.)
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You can spare the time and money to be at the shop more often, or you can do the work yourself. f you don’t mind holding out for a car with an extended warranty, you can handle the less predictable expenses that come with owning an older car that’s out of warranty and needs major repairs, or if you’re handy with a wrench yourself, then you can bear the downsides that come with a used vehicle’s lower up-front purchase costs.
If a car is only a couple of years old, a pre-owned vehicle is likely to be barely any more trouble than a brand new car when it comes to maintenance—and of course a thorough test drive, a vehicle history report and a professional vehicle inspection will bring peace of mind, too.
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You don’t mind doing some research to score a great deal. A lot of factors go into the value of a used car such as how many kilometres are on the odometer, whether the car’s history shows that scheduled maintenance and recall work have been performed correctly by the previous owner, and which features are equipped. If you know your stuff and can do some thorough research, you may score a deal on a car that’s priced for less than it’s worth. Score a deal now, and you can recover more of what you paid when you sell it off to its next owner.
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Lower insurance costs can contribute to lower carrying costs. In general, a used car will have lower insurance rates than a new version of the same model. There can be more to this story such as where you live, whether your car is more likely to be stolen, and whether you have safety features that insurance companies provide discounts for, but these factors are changeable and should be investigated with your insurer independently. On the whole, though, you’ll most likely save money on your insurance by choosing a used vehicle.
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Cars are a lot more reliable than they used to be. Once upon a time, cars were a riskier proposition as they got older. That appears to be changing, though, according to J.D. Power’s most recent Vehicle Dependability Study, which examines the number of problems reported on three-year-old vehicles. The 2021 study showed a 10 percent improvement in overall vehicle reliability than the 2020 study, placing vehicle reliability at its best in the study’s 32-year history. Owning a vehicle is never risk-free as far as reliability is concerned, but choosing used seems not to be as risky as it once was.