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If you’re looking to buy a vehicle in Canada, one major question almost always comes up. Is it better to buy a used or new car? After all, there are plenty of benefits and drawbacks to either option, both in the financial and mechanical sense. So, as you can imagine, it’s an important question to consider before you make your choice.

Should You Buy A Used Or New Car?

Although it may be a simple choice for some drivers, there are many different factors to consider before you buy a new or used car. 

How Much Car Can You Afford?

One of the first things you should think about is how much your used or new car will cost you. From upfront costs to future costs, you may encounter. For instance, while new cars usually have higher price tags, you typically won’t have to deal with as many maintenance issues and repairs as used models, at least not right away. 

Then again, a new car can severely drain your finances, especially if you don’t make a down payment or have a long financing plan. Since most people cannot afford to buy a new car outright, a used one can be much easier to finance. Plus, if you find a cheaper model, the maintenance and repairs may not be too expensive. You can even shop around for private sellers to save on interest and dealership fees.   

How Much Should You Spend On A Car?

The amount you spend on a car will vary based on how much you can afford. In general, it’s recommended that you spend no more than 10% to 15% of your net income on your car. Some experts recommend following the 20/4/10 rule. This rule says you should always put at least 20% down, have a car loan term of 4 years or less and spend no more than 10% of your net income on your car payments.

How Much Financing Can You Qualify For? 

The amount of financing you can qualify for will also impact whether you should buy a used or new car. Depending on your income, debt, and credit score, the amount you qualify for will vary. It may be worth getting pre-approved for a car loan before shopping. That way, you’ll know which cars fall within your budget and financing capabilities. Online dealerships like Clutch go a step further by populating a list of cars based on the financing you’re pre-approved for with them. That way you’re almost guaranteed to get the car you want.

New Cars

Although you may not be able to buy a new car upfront, you can always apply for an auto loan, then pay it off in installments. While the interest and fees you’re charged during your term can significantly increase the size of your payments, many dealerships and manufacturers may offer you low rates or even 0% interest for several months if you finance a new model or if your finances and credit are in good shape. 

Used Cars

If you’re worried about the costs, you can buy a used car with cash or a smaller loan. However, some used cars come with higher interest rates due to their lower values or shorter payment plans. Alternatively, you can find a private seller and won’t need to pay any interest or fees. Instead, you’ll have to account for other costs, such as an inspection and the transfer of ownership.

AmountInterestTerm (Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn more
ClutchVaries8.49% +24 - 96Learn more
Canada Drives$500 - $35,00029.99% - 46.96%9 - 60Learn more
SkyCap Financial$500 - $10,00012.99% - 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more

Your Shopping Experience

That brings us to our next factor, what to consider when shopping for a new or used car. Searching for a new vehicle can take a lot of time and effort because you may have to visit several dealerships to find the right one. Not to mention, car financing can be difficult to get approved for if you have bad credit, low income, or debt problems.

On the other hand, buying a used car can be just as inconvenient because it’s harder to tell how it’s been driven by its previous owner(s). In this case, getting a professional inspection done and checking the vehicle’s history is very important, so you can make sure there have been no accidents or subpar maintenance/repairs done.

What Do You Want In Your Car? 

Whether you should buy a used or new car, will also depend on what you want or need in it. Generally, newer cars come with better features and the latest in driver technology. With the inclusion of these commodities, the car will likely be safer and more reliable than a lot of used models too. 

Plus, a newer vehicle can mean that the manufacturer has had extra time to improve their models and iron out any factory defects. 

Unfortunately, a used car may not be as safe or reliable, depending on its age, mileage and previous driver’s habits. Nonetheless, there are plenty of cases where older models far outweigh their newer counterparts because they were built with sturdier materials and higher quality craftsmanship, which some manufacturers don’t produce anymore. 

Does The Car Have A Warranty?

A downside to used cars is that there are fewer guarantees. Even some older models from large dealerships will not come with a warranty if the car is beyond a specific age or mileage. However, when you shop for a new car, your dealer will probably offer you several types of warranties with different terms and conditions, that can cover or reduce the cost of all sorts of mechanical and electrical issues.

That said, a warranty can significantly increase the price of your car and may not be worth it, especially for vehicles with low or no mileage on them. For example, if your warranty only covers maintenance for a couple of years or up to a certain mileage. After all, most warranties don’t include wear and tear or incidents that were your fault.

New Cars vs. Used Cars – Overview

PriceHigher initial priceLower initial price
Features Can choose any make, model, trim, colour, etc.Selection is limited to what you can find online, etc.  
DepreciationFaster loss in resale value Slower loss of resale value
FinancingAvailable through dealerships, banks and online lenders. Approval, rates and terms vary based on your income, credit, etc.Available through dealerships, banks and online lenders. Approval, rates and terms vary based on your income, credit, etc.
WarrantyMore types, longer terms, better coverage, etc.Less possible for older models with more mileage
InsuranceHigher rates/premiumsLower rates/premiums
Repairs & MaintenanceTypically not needed for a long time. Some issues are covered by your warrantyOften necessary and more immediate. May not be covered by any warranty

Why Should You Consider Depreciation When Buying A Used Or New Car?

As mentioned, when it comes to new and used cars, one of the primary factors that every driver should think about is the overall cost. Not just the initial price tag but all the other expenses that come before and afterward too, such as depreciation. 

New Cars Depreciation 

You might think a new car would retain its resale value better than a used one but it’s actually the opposite. In fact, experts say that vehicles lose 17% – 20% of their value as soon as they leave the dealership. After that, every year a car is driven, it depreciates by another 10%. So, if you sell your car 3 years later, you’ll be lucky to get half of what it cost when you bought it, even in good condition.

Used Cars Depreciation

Although a used car can also lose a lot of value over time, it typically won’t depreciate as fast as a new one. For example, if someone purchased a new $40,000 vehicle and it lost 50% of its value over 3 years, it would theoretically only be worth $20,000. However, if you bought it used at this price, you could probably sell it for around $15,000 after another 3 years. 

Worried about owing more than what your car is worth? Check out how you can manage your negative equity

Should You Buy A Used Or New Car: Insurance Rates

Your car loan isn’t the only cost you need to consider when buy a used or new car. An added cost to consider is insurance costs. These costs can add a few thousand dollars to your bill each year depending on your car, insurance coverage and are you live in. 

  • New Cars – While your premium can fluctuate based on a few things (age, driver’s history, etc.), the general rule is that the newer and more valuable your car is, the higher your insurance rate will be. If your car is new, you may also want to spring for collision and/or comprehensive coverage, either of which will increase the size of your final bill.
  • Used Cars – Luckily, you won’t have to pay as much to insure a used car, especially if it’s an older model. If you have a clean driver’s history, good credit and are over the age of 25, you may pay even less. In addition, collision and comprehensive coverage aren’t as essential once the car has been driven a lot and starts collecting dents, scratches and rust.

Need help finding the right car insurance for you? Check out this car insurance guide.

Repairs & Maintenance: Used Cars vs New Cars

  • New Cars – Hopefully, a new car won’t need any maintenance or repairs for a long time, with the exception of basic procedures, like oil and tire changes. Then again, if you don’t buy from a reputable dealer/manufacturer or you’re involved in some kind of collision, getting your new car fixed and finding the right parts can be extremely pricey unless the damage is covered by your warranty.
  • Used Cars – Remember, it can be tough to tell what shape a used car is in, particularly under the surface. Some require a lot of maintenance, others have had undisclosed accidents or repairs done. Even worse, some cars are total lemons that break down all the time. If you are going to buy used, be sure to get the car’s full history beforehand and, if it’s from a dealer, ask about warranties.

Down Payments & Trade-Ins: Used Cars vs New Cars

  • New Cars – A solid down payment can reduce the amount of interest you’ll pay when financing a new car. However, the recommended down payment is 20%, which can set you back. Thankfully, some dealerships allow you to trade in your old car for a lower price on your new one. Watch out, because your used car must have some resale value and you probably won’t get what it’s actually worth.
  • Used Cars – If you are buying a used car from a dealership, you may still be able to make a down payment or trade-in. Of course, these aren’t usually options with private sellers but that may not be the worst thing if you don’t have enough money or another car. Unfortunately, if your current vehicle has no resale value left, you may have to get it fixed up by a mechanic or scrap it altogether. 

What To Do Before You Purchase a Used or New Car

As you can see, there are plenty of factors to think about prior to buying any new or used vehicle. Don’t get discouraged. Once you get the hang of the process, finding the right car is straightforward enough. Here’s what you should do you make your decision:

  • Research & Get Quotes – A new or used car can be a big financial commitment. So, it’s not always wise to buy the first one you find. Be sure to research multiple car brands and offers online, check the classifieds and contact several dealerships to get price quotes and other relevant information. 
  • Check Car Reviews – Any company can make their vehicles look great with the right marketing but that doesn’t mean every car is reliable or affordable. When doing your research, checking reviews from auto experts and owners can tell you a lot about how long a car will last, how much it’s worth and how much it costs.
  • Book Test Drives – While you might enjoy the feel of a specific vehicle when you first drive it, it’s a good idea to try out several makes and models until you’re 100% satisfied. During each test drive, take the car through the suburbs and on the highway to confirm that it’s safe, good on gas, ergonomic and handles well.
  • Negotiate Prices – Though some dealerships and private sellers will not adjust their prices, it can’t hurt to try negotiating. Obviously, your options are more limited with a private seller but a dealer might at least throw in some incentives if you buy a new or slightly used car, such as extra features or a better warranty. 

Trying to Decide Between a New or Used Car?

In the end, buying a new or used car should depend mainly on your current and future financial situation. For instance, if you have a good income and credit score, a new car can be a great investment. Then again, a used car might be more affordable overall. Either way, it’s best to research and avoid making any quick decisions. 

Need help finding the right financing for a new or used car? Loans Canada can connect you with the best lender in your area.

FAQs On Buying Used Or New Cars

How do I know if my used car is good?
Before buying a used car it’s important to check your car’s vehicle history. It’s also recommended that you have the car inspected by a mechanic before buying to ensure there are no issues with the car.
How do I negotiate the price of a car?
When buying a car it’s important to research the car so you know it’s market value. If it’s a used car, be sure to check the vehicle’s report. If you find any accidents or issues with the car, you can use it to reduce the price. Similarly, you can try including the maintenance and accessories in the price.
Should you get a car loan from a dealership or online lender?
Both options have their benefits and drawbacks. Getting a car loan from a dealership may be more convenient than an online lender. However, an online lender may offer better rates and more flexible terms.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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