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If you’ve been thinking about purchasing a new vehicle and know that a used one is the best option based on your current financial situation, you’ve likely been thinking about heading to a used car dealership. But, do you know where these dealerships get their inventory? Keep reading to find out.

The Difference Between A Private Seller And A Dealership

If you don’t have a lot of experience purchasing used cars, it can be a bit tricky to truly know whether a private seller or a dealership is the right way to go. Some private sellers tend to be more flexible on their prices, while some dealerships can offer you a better quality of vehicles in general. 

In the end, your decision should be mainly based on your current financial health, what you’ll be using the car for, how trustworthy the seller is, and how close you are to an affordable mechanic. After all, the biggest drawback to buying any used car is that has likely depreciated in value and picked up some wear-and-tear.

The Benefits Of Buying Your Vehicle At A Used Car Dealership

As mentioned, buying a privately owned used car can be beneficial in many ways. In fact, many people just want to sell off their old vehicles as fast as possible, so they’re willing to haggle. Under the right circumstances, you’ll even be able to avoid some of the paperwork and additional costs associated with the average dealership purchase.

Then again, getting your pre-owned car through a dealership may offer up a few more benefits than a private seller, because you can: 

  • Acquire warranties, accident reports, and other security features
  • Test-drive a large selection of vehicles within the same day
  • Access various perks and comforts (GPS, satellite radio, etc.) 
  • Find reduced prices on older models when their new stock comes in
  • Pay upfront or get customizable in-house financing options
  • Offer a down payment to receive better interest rates and payment plans
  • Return to their on-site garage for no or low-cost repairs and maintenance
  • Possibly trade in your current used car for a newer make or model

Although buying a used car from a private seller is a little more simple and cost-effective initially, it may also be a “what you see is what you get” kind of situation. If something goes wrong on the vehicle, you’ll have fewer assurances than with some dealers offer.

That said, a used car from a dealership might come with its own expenses and inconveniences. While there are more guaranties with a reputable business, not every vehicle dealer is looking out for your best interest. 

So, be sure to research and consult a financial advisor before you make your final choice. Additionally, it’s a good idea to leave a deposit with the seller and get the vehicle inspected by your own mechanic to rule out any defects. This way, you won’t end up paying too much for a total junker.  

New vs. Used Cars
New car or a used one? Check out this infographic to help make the decision.

How Used Car Dealerships Acquire Their Vehicles

Now let’s move onto the question at hand; where do second-hand car dealerships find vehicles for their inventory? There are three main methods they use to fill up their storage lots and showrooms:

Car Auctions

One of the main ways that used car dealers buy and sell their inventory is through auctions, which are held across the country and can yield the widest range of vehicles that are available to the general public.  

The first event is called a closed auction and is only open to franchised dealerships that are working with specific manufacturers. The vehicles sold here are called “program cars” and are often the result of lease returns, repossessions, and other related incidents. Fortunately, while program cars are older models, they’re generally in much better shape than most privately owned vehicles due to their lease agreements. 

An open auction, on the other hand, is where smaller dealerships can go to find vehicles that are in worse condition overall or that didn’t sell at a closed auction for some other reason. Here, almost any car, van, truck, or SUV can sell, no matter how much mileage it has or what year it was made. 

All this said, auctions aren’t always a dealership’s first choice because a lot of time, money, and effort has to go into the auctioning process, despite it being somewhat easier to buy, sell, and move large volumes of cars.  

Have you considered a certified pre-owned vehicle

Customer Trade-Ins

Remember, one of the advantages of purchasing your second-hand car through a dealership is that you can potentially trade-in your current vehicle in exchange for a reduced price on the one you’re about to buy. If the vehicle is in good enough shape, you may even receive better conditions when you apply for in-house financing.

If all goes well, they’ll be able to fix up your old car for minimal costs and resell it within a reasonable time frame. They may also buy up less valuable vehicles for cheap and send them to auction with hopes of seeing a profit. 

This may be a preferred alternative because the dealership can skip the auctioning fees. Instead, they’ll have to compensate for the amount of time and money it takes to purchase, repair, and sell each individual vehicle.    

Is it possible to trade-in a vehicle that isn’t paid off? Find out here

Buying & Trading With Other Car Dealers

Since auctions and customer trade-ins can be inconvenient and expensive, many second-hand dealerships would rather do business with the other car lots in their neighbourhood. In fact, nearly 50% of used vehicle dealerships purchase their inventory in this fashion because it’s simple, to the point, and helps build connections. 

In this situation, they would be taking the same risk that they would when trading with prospective clients. The cars they buy are often older, well-driven models that are waiting to be fixed up and sold at a higher price.

Looking To Finance A New Or Used Vehicle?

If you’re thinking about buying a new or used car, van, truck or SUV, then you’re in luck. Loans Canada can help you find the right lender based on your unique needs. 

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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