How to decide between buying a new or used car

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You’re looking for a vehicle. Should you buy new or used?

There are advantages and disadvantages to both.

A new car will have the very latest technology available on the market. It will have a warranty for probably as long as you’ll own it, and you can likely lease it at a fairly low rate of interest. But it will be the most expensive to purchase.

A used car will be significantly less costly to buy, and it will have a proven record of reliability. However, it will probably be more expensive to maintain as its parts wear out, and its technology will be outdated.

The decision is simple for some. They will always buy a new vehicle because they want the peace of mind that comes with the warranty, they want the latest and greatest, and perhaps they don’t want somebody else’s cast-off. But others are quite content with technology that’s several years old, and they don’t want to buy something that typically loses a third of its value soon after it’s driven off the lot.

New-car buyers “love the new technology, especially in the last few years with the safety technology. That Apple CarPlay stuff and whatever turns you on, it’s in the new cars,” says Hank Vandermeer, the dealer-principal of Vandermeer Toyota in Cobourg, Ont. “If you just want to gas and go, then buy a three- or four-year-old” vehicle.

Vandermeer says some buyers prefer the peace of mind of buying a new car, with only scheduled maintenance to pay for in the first few years. Others prefer the value of an older car, which they’ll plan to drive until it starts to wear out and cost them money. Often, monthly finance payments will be similar for both new and used – buyers have a set budget and will buy the car that fits that budget.

While many buyers are set in their ways, a recent report by BrandSpark International for Kijiji Canada found that about one in three buyers who began searching for a used car ended up buying new, and about one in four buyers who’d begun searching for a new car bought used. Almost half of all buyers set out to consider both.

Like the cars themselves, the buying process has changed over the past few years. There’s not much wiggle room for negotiation when buying a new car, but the price of used cars has also become far more standardized.

“The Internet basically sets the price,” Vandermeer says. “If my pricing is higher, we won’t get the e-mail leads on it, or the calls. If it’s too low, it sells in a day, and I made a mistake there. The days of me setting the price are gone. Before the internet, the average consumer went in blind. Now, people can do research and be confident the price they’re going to pay is fair.”

Dealerships like selling used cars because they can make money on them twice. The sales department typically runs as a separate division from the service department, so sales will pay service to fix and prepare a car that’s been brought in as a trade. Then sales will make money by selling the car, recouping the costs of the service in the sales price.

If you plan to keep your vehicle for just a year or two, Vandermeer recommends buying used. If you buy new and then try to sell the car after a short time, few people will want to buy it without getting a big discount off the new price. Otherwise, they can purchase a brand-new vehicle for themselves for only a small additional cost. This is why new vehicles devalue so quickly.

Also, the most cost-effective period for financing the purchase of a new vehicle is normally about four years. The rapid devaluation of the vehicle in the first couple of years means that if the finance term is much longer – and periods of seven and even eight years are often popular, thanks to lower monthly payments – then it can take four or five years before the value of the vehicle matches the amount still due on the loan. If you try to sell before then, you won’t get the price for the vehicle that you still owe to the lender.

However, these days, many younger buyers donʼt wish to own a car outright and prefer to commit to regular payments to lease their vehicle. With a lease, the buyer generally covers about half the purchase price, returning the vehicle to the dealership at the end of the agreed period, typically 36 to 48 months. There are pros and cons to leasing and financing, but it’s usually too costly to lease a used vehicle: Leases for used cars are arranged through banks, not manufacturers, and the interest rates are generally higher.

The entire process is still evolving rapidly. Genesis Motors Canada, the premium brand of Hyundai, started selling its cars four years ago for a fixed price with no haggling, but that price includes almost everything the car will need for its first 100,000 kilometres or five years: all regularly scheduled maintenance is included, as well as the warranty, and your local dealership will come to collect the car (within 50 kilometres) and leave you a loaner while it’s in the shop. Your only costs will probably be “wear items” such as gas, washer fluid, tires and brakes.

The Genesis coverage stays with the car, not the owner, so when it’s sold as used, if it’s less than five years old and with less than 100,000 kilometres on it, the remainder of the coverage is still included.

“It’s not just the cost of ownership in dollars and cents – think about the time you’re saving,” said Jarred Pellat, a spokesperson for Genesis. “Not having to sit in a waiting room at a dealership, waiting to be told, ‘Oh sorry – we’re understaffed this morning and it’s going to take another hour to get your oil changed.’ I would say that modern Canadian consumers would value their time just as much, if not more, than their money.”

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