Car Deal Canada

Buying a New Car vs Used Car

Buying a New Car vs Used Car

Buying a car is one of the biggest purchases most Canadians will make. With the average price of a new vehicle now over $42,000, it’s critical to weigh all your options before handing over that huge sum. The debate between purchasing new or used has raged for decades in the automotive world. But in today’s market, the decision involves more factors than just sticker price.


Advanced safety features, rapidly evolving technology, extended warranties, and the financial upside of leasing all impact the new car proposition. For used vehicles, prices have soared in recent years, chipping away at the value advantage. Still, letting someone else take the depreciation hit offers savings. This comprehensive guide will outline the pros, cons, and key considerations when deciding between new and used.

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The Pros of Buying New

Purchasing a brand new vehicle comes with several key advantages that used cars simply cannot match. The most significant benefit is gaining access to the latest safety features and technology that automakers offer. Here are some of the top pros of buying new:

 

  • Advanced Driver Assistance Systems: New vehicles today come equipped with sophisticated ADAS tech like automatic emergency braking, lane keeping assist, blind spot monitoring and adaptive cruise control. These innovative features are rapidly evolving and can greatly enhance safety.
  • Infotainment Systems: The newest models boast cutting-edge infotainment systems with large touchscreens, smartphone integration, navigation and premium sound systems. Used cars will lack the latest interfaces and connectivity.
  • Improved Fuel Economy: Thanks to advances in fuel injection, aerodynamics and powertrain engineering, today’s new cars achieve better gas mileage than predecessors from even 5 years ago. Go green and save money at the pump.
  • Higher Resale Value: Brand new cars suffer the biggest depreciation hit in their first year. But after that initial drop, they hold value better long-term than their used counterparts.
  • Warranty Coverage: New vehicles come with comprehensive factory warranties, usually 3 years/60,000 km for bumper-to-bumper and 5 years/100,000 km for powertrain. This provides peace of mind.

 

While new cars cost more upfront, they provide motorists with optimal safety, technology, efficiency and driving experience. The cutting-edge features make them compelling choices over used options.

 

Cons of Buying New

While shiny new cars may seem appealing, there are some significant drawbacks to purchasing a brand new vehicle that are important to consider:

 

Faster Depreciation and Loss of Value

One of the biggest cons with new cars is how quickly they lose value after purchase through the depreciation process. Depreciation refers to the loss of value in the vehicle over time. New cars can lose up to 30% of their value within the first year after being purchased. After 5 years, a new car may only retain 40% of its original value.

This rapid depreciation is like throwing money away, as you are losing thousands of dollars in vehicle value each year. Essentially that brand new car loses its shine very quickly, while still having years of loan payments ahead.

In contrast, used cars have already taken the big depreciation hit from the first owner. While used cars do continue to depreciate annually, it is at a much slower pace. This makes your investment in a used car better retain its overall value.

 

The Advantages of Buying Used

The greatest benefit of purchasing a used vehicle is the significant cost savings compared to buying new. Used cars have already taken the huge depreciation hit from the first owner, so you can get a model that’s only a few years old for a fraction of the original price.

For example, a new mid-size sedan may cost $30,000. But after two years and 40,000 km, its trade-in value or resale price could be around $18,000. That’s a $12,000 savings by going with a lightly used version of the same model.

In addition to lower upfront costs, insurance premiums are lower for used cars versus brand new. Since a used vehicle has depreciated substantially, it costs less to insure and replace if in an accident.

You can also often find certified pre-owned (CPO) used cars that come with extended warranty coverage. This provides peace of mind without the premium you pay for a new car warranty. Many CPO used vehicles feel almost like new but are priced thousands below a new model.

When shopping used, there’s also a much wider selection of makes, models, colors and trim options. You can likely find your ideal vehicle configuration at a more affordable price point versus custom ordering new.

In summary, going with a used car means avoiding the painful initial years of rapid depreciation. You get similar features and quality at a fraction of the cost of new.

 

Disadvantages of Buying Used

While used cars offer significant savings, there are some drawbacks to consider as well. The most notable disadvantage is that used vehicles are more likely to need repairs and maintenance. As a car ages and accumulates miles, parts wear out and components can break or fail. Even a certified pre-owned vehicle with lower mileage could develop issues as it’s no longer under the new car warranty.

With an older used car, you may encounter repairs for items like the transmission, timing belt, alternator, water pump, or other systems. These can be costly fixes. Without a warranty, the owner pays out-of-pocket for any maintenance or repairs. Make sure to factor in higher potential maintenance costs when budgeting for a used vehicle purchase.

It’s advisable to have a used car inspected by an independent mechanic prior to purchase. They can identify any existing problems or issues that may need addressing. This allows you to negotiate with the seller on price if costly repairs are required or even walk away from the deal if issues are too significant.

While the risk of repairs is higher, this drawback is offset by the substantial upfront savings with used cars. Being proactive with maintenance and addressing problems early can help minimize repair costs over your ownership period. And you avoid the rapid depreciation hit with new vehicles.

 

How Depreciation Impacts Costs Over Time

Depreciation is one of the key factors to consider when deciding between a new or used vehicle. Depreciation refers to the loss of value in a car over time. New cars tend to depreciate much more rapidly in the first 1-3 years of ownership compared to used vehicles.

According to industry data, a new car can lose up to 30% of its value just in the first year after purchase. Within the first 5 years of ownership, a new car may depreciate by 60% or more off the original purchase price.

In contrast, a 1-2 year old used car has already taken that big initial depreciation hit from the first owner. The used car will tend to depreciate at a slower rate in following years.

This difference in depreciation rates is why buying used can provide substantially better value. The first owner absorbs the major drop in value, then you can purchase the car for much less. Your used car still has plenty of life left while avoiding that rapid depreciation.

Understanding how quickly new cars lose value demonstrates why buying new may not be the wisest financial decision. Unless you plan to keep the new car for many years, you may end up owing more than it’s worth after just 2-3 years due to rapid depreciation.

 

What Mileage Counts as High for Used Vehicles?

When shopping for used cars, mileage is one of the most important factors to consider. Over 100,000 km is often considered high mileage for a used vehicle. However, modern vehicles with proper maintenance can still operate reliably well beyond 150,000 km or more.

In general, higher mileage vehicles will require more frequent repairs and maintenance. Parts like the battery, tires, brakes, belts, hoses, and fluids will need to be replaced more often. Rubber components tend to wear out faster on vehicles with more mileage.

However, well-maintained higher mileage vehicles that have complete service records can still be a good value. The key is having a thorough inspection by a trusted mechanic to identify any issues that may need to be addressed. They can provide an assessment if the vehicle’s condition is consistent with the mileage.

While low mileage used vehicles will require fewer repairs initially, even they will need maintenance over time. The most important factors are the overall condition and maintenance history. Mileage alone does not tell the whole story.

With regular upkeep and care, many modern vehicles can easily last over 250,000 km. So higher mileage does not necessarily mean a used car should be avoided, especially if it has been properly maintained. The key is doing due diligence with a test drive and mechanic’s inspection prior to purchasing any used vehicle.

 

Getting the Best Deals in 2024

Experts predict 2024 will have excellent deals on both new and used cars due to a few key factors:

Oversupply of New Vehicles – Automakers ramped up production in 2022-2023 after shortages during the pandemic. This has led to an overabundance of new vehicle inventory on dealer lots. With this surplus, dealers are motivated to offer significant discounts to clear out the excess.

Incentives from Automakers – Manufacturers are providing more incentives like 0% financing, cash rebates, and discounted leasing to entice buyers. This makes affordability more attractive.

Declining Used Car Prices – Used car prices skyrocketed in 2021-2022 due to low supply. But analysts forecast this bubble will burst in 2024 as demand softens. Lower used car values mean better deals.

Higher Disposable Income – Strong economic growth is putting more disposable income in consumer’s pockets. This gives buyers greater ability to purchase new vehicles.

Bigger Tax Refunds – Experts predict larger tax refunds in 2024 which gives consumers extra cash to put towards a new or used car purchase.

With market dynamics favorable for buyers, 2024 provides an opportune time to upgrade your ride. By leveraging incentives and negotiating prices, significant savings can be achieved whether you opt for new or used.

 

Financing Differences Between New and Used

When it comes to financing, new cars often have an advantage over used models. This is because lenders view new vehicles as less risky investments. As a result, interest rates are frequently lower when financing a new car purchase compared to a used one.

For buyers with good credit, it’s common to qualify for 0% or other promotional financing offers from automakers when purchasing a new vehicle. This allows you to finance the entire cost interest-free over several years. Used cars almost never come with special financing deals like this.

In addition, since new cars depreciate quickly in the first few years, lenders are eager to finance them. The lender sees the car as retaining decent value that can be recouped if needed. With used cars, especially higher mileage ones, there is increased risk of faster depreciation.

Run some calculations to see if the lower interest rate on a new car outweighs the higher upfront cost. While used vehicles are cheaper to buy, the interest rate difference of even just 2% on a 5-year loan can add thousands in extra interest payments.

Consider all the finance offer details when comparing new and used. This includes loan term lengths, down payments, and any fees. New car financing often comes out ahead for buyers who qualify for the best rates.

 

Certified Pre-Owned Provides Warranty Coverage

Certified pre-owned (CPO) vehicles provide an excellent middle ground between buying new and used. These are lightly used cars and trucks that have gone through extensive inspections and refurbishing by the dealership. To qualify as certified pre-owned, the vehicle must meet strict criteria on age, condition, and mileage limits.

The major advantage of CPO is an extended warranty that goes beyond the original factory coverage. This gives buyers confidence and peace of mind on the vehicle’s reliability for several years. Certified used cars also come with added perks like roadside assistance, loaner cars, and discounts on parts and services.

Since certified pre-owned are off-lease returns or trade-ins, their prices are substantially below brand new models. However, CPO will be slightly higher than comparable non-certified used vehicles. This premium cost is worthwhile for the warranty protections and rigorous inspections.

Certified pre-owned splits the difference nicely between new and old. Buyers get excellent value and reliability without the rapid depreciation of new vehicles. For those wanting a gently used car with warranty coverage, CPO is an ideal option.

 

Leasing vs Buying

When deciding between a new or used vehicle purchase, some consumers may also consider leasing. Leasing has some advantages compared to buying in terms of lower monthly payments. However, leasing is very different from ownership in the long run.

With a lease, you are essentially renting the vehicle for a set period of time, usually between 2-4 years. At the end of the lease, you return the vehicle and can get a new leased car. Lease payments are based on the vehicle’s expected depreciation during the lease term plus interest charges. This results in a lower monthly payment compared to financing a purchase.

However, when you buy a car – whether new or used – you eventually own it outright after making payments. The monthly payment is higher because you are paying off the entire purchase price plus interest over a longer loan term. But once the car loan is paid off, you own an asset that still has value. With a lease, you never build any equity.

Leasing can be a flexible option if you want to drive a new car every few years. Buying is a better financial move if you plan to keep a vehicle long term after paying it off. The choice depends on your budget, usage, and preferences around owning versus renting vehicles.

 

Reliability Comparison

When weighing whether to buy new or used, one key factor is predicted reliability. New cars often have issues and recalls from first model year production. It takes time for manufacturers to work out all the kinks in newly designed vehicles. Used cars have already gone through this initial shakedown period, so later model years tend to have fewer problems.

According to Consumer Reports data, new models average 0.3 more problems per 100 vehicles than vehicles that have been in production for over three years. Issues reported on new models include everything from engine troubles to malfunctioning electronics. Buying used skips this risk of purchasing a vehicle in its first year on the market.

However, used cars come with their own reliability concerns. The unknown maintenance and accident history means more surprises can pop up. New cars offer the peace of mind of a full factory warranty, while used vehicles likely only have a short certified pre-owned warranty if anything.

Ultimately, the wisest path is purchasing a lightly used car that is 2-3 years old. This balances the risk of first year defects with the extended warranty coverage of a nearly new vehicle. It also avoids the rapid depreciation of brand new cars. For optimal reliability when deciding between new and used, target models with a strong track record in their class.

 

Safety Rating Differences

One key advantage of purchasing a brand new vehicle is access to the latest safety technologies and highest safety ratings. New model year vehicles often come equipped with advanced driver assistance features and crash avoidance systems that used cars simply won’t have.

These can include:

 

  • Automatic emergency braking
  • Adaptive cruise control
  • Lane keeping assist
  • Blind spot monitoring
  • Rear cross traffic alerts

 

New vehicles are also built to meet the most up-to-date crash test standards and regulations. They receive the top safety picks from organizations like the Insurance Institute for Highway Safety (IIHS) and the National Highway Traffic Safety Administration (NHTSA).

Used vehicles, on the other hand, lack access to the latest safety advances. The older the model year, the fewer advanced safety features will be included. Without these modern technologies, used vehicles may be less equipped to prevent accidents and collisions.

For families or drivers prioritizing safety, choosing a new vehicle over used provides an extra layer of protection that could prove invaluable in the event of a crash. The peace of mind knowing you have the most current life-saving systems can be compelling motivation to buy new.

 

Conclusion

In conclusion, deciding between purchasing a new or used vehicle requires weighing several key factors. When buying new, you get the latest features and technology, full warranty coverage, ability to customize, and no previous wear and tear. However, new vehicles also come with steep depreciation, higher prices, and potential first model year issues.

With used cars, the advantages lie in significantly lower upfront costs, still having some factory warranty in many cases, access to a wider selection, and certified pre-owned options. The drawbacks include no ability to customize, more frequent repairs, unknown history, and higher financing rates.

By considering how quickly new cars lose value, what constitutes high mileage, and timing purchases right to get good deals, buyers can make the most informed decision. Weighing the long-term costs, warranty differences, predicted reliability, and overall value allows consumers to determine if new or used is the better choice for their budget and needs.

The bottom line is that both options have trade-offs. For those focused on affordability, used vehicles provide better value. But for buyers who prioritize the latest features and technology, new cars may be worth the higher sticker price. Carefully comparing the pros and cons allows Canadian consumers to decide what’s right for their situation.

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Questions About Buying a New or Used Car

Buying used is often better in Canada as you avoid the steep depreciation new cars face. A new vehicle can lose 20-30% of its value in the first year. With used cars, the previous owner takes the depreciation hit. Used cars also tend to have lower insurance rates in Canada. However, new cars offer the latest tech and often have better financing rates from dealers.

Pros of buying new in Canada include:

 

– Latest tech and safety features

– Customizable options

– Full warranty coverage

– No previous wear and tear

– Lower maintenance costs initially

– Potentially better financing rates from dealers

Cons of new cars in Canada:

 

– Steep depreciation, losing value quickly

– Higher insurance premiums

– Pay more sales tax

– Higher interest rates on financing

– Extra fees like documentation fees

Pros of used cars in Canada:

 

– Much lower purchase price

– Depreciation has already occurred

– Still have plenty of life left with proper maintenance

– Lower loan amount if financing

– Lower insurance premiums

– Can find well-maintained models

Cons of used cars in Canada include:

 

– No factory warranty protections

– Higher mileage leads to more repairs

– May need new tires and brakes

– Less tech and safety features

– Unknown maintenance history

– Could have hidden issues

 

The best mileage for a used car in Canada depends on its age, but a good rule of thumb is:

 

– 5 years or newer – Under 100,000 km

– 6-10 years – Under 150,000 km

– Over 10 years – Under 200,000 km

 

Higher mileage vehicles may still be reliable but require closer inspections. Consider maintenance history as well.

 

The best months for car deals in Canada are typically:

 

– December – Year end sales push

– January to February – Dealers offer discounts to clear old inventory

– August and September – Dealers want to make space for next year’s models

– October/November – Dealers want sales before winter slows market

Used car prices remain higher than normal in Canada for 2024 due to ongoing supply chain issues from the pandemic limiting new car inventory. However, analysts predict used car prices will continue cooling off throughout 2024 as supply recovers. Wait for further declines if possible.

Canadians often find it easier to negotiate the price of used cars compared to new vehicles. New cars typically have less wiggle room for dealers on pricing due to narrower profit margins. You also save more money negotiating down the price of a used car.

Buying from a dealership in Canada provides more protections with legal obligations for safety standards and disclosures on issues. However, private sales can be cheaper. Get a Carfax report and independent inspection when buying private sale. Consider certified pre-owned from dealers for compromise.

Common fees when buying a car in Canada include:

 

– Sales tax

– Registration and title transfer fees

– Documentation fee to process sale paperwork

– Safety certification inspection fee

– Dealer conveyance fee

– Extended warranty costs (optional)

20% down payment is recommended when financing a car in Canada to get the best rates. This shows the lender you are financially committed. However, $0-5K down is more common. Save up if you can to put more down and get lower payments.

In Canada, leasing makes sense if you want a lower payment, always want a new car, drive less than 20,000 km annually and can hand the car back in good shape when done. Buying new can be better for longer ownership, high mileage driving, and customizing your car. Crunch the numbers in both scenarios.

720+ credit score is ideal for the best new and used car loan rates in Canada. Prime rates usually require scores over 660. Building your score as high as possible will save you money with the lowest interest rates.

Tips to improve your chances of auto loan approval in Canada:

 

– Pay all bills on time to build credit history

– Pay down other debts to lower debt-to-income ratio

– Save up a larger down payment if possible

– Ask co-signers with better credit to apply with you

– Shop at credit unions and financing companies

 

Yes, get pre-approved before visiting dealers in Canada. This shows you have serious buying power. It also lets you negotiate as a “cash buyer” for the best price without revealing you need dealer financing. Then you can compare your pre-approval rate against the dealer financing.

Mandatory minimum auto insurance coverage in Canada includes liability coverage for injuries and property damage you cause others. Required minimums vary by province from $200,000 up to as high as $2 million. Collision and comprehensive are optional based on your car’s value.

Top ways to save on car insurance in Canada:

 

– Shop rates frequently as new deals emerge

– Ask about bundling your home and auto insurance

– Take higher deductibles for collision/comprehensive

– Consider usage-based insurance

– Ask about discounts for driving training, good grades, etc.

– Maintain good credit and safe driving record

When finalizing a car purchase in Canada, make sure to get these documents:

 

– Bill of sale listing negotiated sale price

– Safety standards certificate

– Service records and ownership history

– Lien check confirming no outstanding loans

– Vehicle history report detailing any issues

– Registration and valid insurance paperwork

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