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New and used cars both have advantages and drawbacks. From prices and insurance to warranties and safety, here’s what to consider when buying any car.
If you’re in the market to buy a car, you likely have a good idea of what you want, starting with the body type (sedan, hatchback, crossover, SUV or pickup), potential makes and models, and maybe even preferred trims. Maybe you’ve already narrowed down your options by researching fuel efficiency and features. Your next big decision? Probably whether to buy new or used.
The obvious upsides? New cars are, well, brand-new, and therefore pristine—for which you’ll pay a premium. Used cars have a history, but they’re also more affordable upfront.
Which offers better value? In this comprehensive car buying guide, we tackle the new-vs.-used debate, thoroughly assessing each car category on nine key factors. By the time we’re done, you should have a clear understanding of whether a new or used vehicle will work best for you and your lifestyle.
If budget is your biggest concern, you’re better off looking at pre-owned cars. They’re significantly cheaper than the same models purchased new, even if they’re only a year or two old. That’s because of depreciation—the rate that a car’s value declines over time. It’s a commonly held belief that a car loses about 10% of its value as soon as it’s driven off the lot. Over the first year, that value can decline another 10%. By the third year, a car could be worth over 30% less!
After that, though, the depreciation slows down. So, if you buy a car that’s three years old or older and keep it in good condition, you can likely get a decent price if you later resell it.
When you’re looking for a car loan to finance your purchase, you may notice that interest rates are significantly higher for used cars. There are a few reasons for this.
First, there’s no clear-cut way of assessing a used car’s value. With a new car, it’s pretty simple—just refer to the sticker price. But with used cars, you have to assess a spate of issues including potential mechanical problems, vehicle condition and the car’s history of accidents.
Also, interest rates on loans for used cars are set by the banks and don’t benefit from incentivized manufacturer rates, as may be the case with new vehicles.
Your credit history is also a factor in determining the cost of a loan, whether you’re buying a new or used vehicle. The lender will do a credit check, to see how likely you are to make loan payments on time.
Generally speaking, it costs less to insure a used car than a new car, but this isn’t a hard and fast rule. Many variables can affect insurance costs, such as the type of vehicle and the level of risk attached to it. For example, insuring a sports car will be much more expensive than insuring a commuter sedan.
Another variable that can affect the cost of insurance: how likely it is that a vehicle will be stolen. It’s not just luxury cars that are targeted—in fact, they usually have better anti-theft features, and they’re a risky option for thieves because they’re easy to identify. Car thieves actually prefer cars whose parts remain more or less the same over time, like Toyota Camrys, Honda Civics and Honda Accords. Why? Rather than selling the cars whole, thieves often take them apart and sell individual parts.
The other key factor in the price of car insurance: You. Insurers look at your age and gender, your location, how long you’ve been driving, how much you drive, your driving record and other factors. (Read MoneySense’s guide to the best car insurance in Canada.)
When you buy a new vehicle, you get a warranty from the manufacturer. When you buy a used car, you have no such guarantee. Some dealers offer warranties, but they aren’t nearly as comprehensive and long-lasting as manufacturer warranties.
Plus, as Carfax Canada says, used-car warranties “aren’t all made equally, they can be different for each vehicle.” While basic warranties cover engine and transmission maintenance, coverage of other parts like brakes, electrical, air conditioning, steering wheel parts and suspension can vary depending on the car’s condition and who’s issuing the warranty. A used-car warranty from an automaker will likely give you better coverage than a third-party warranty that’s not tied to a manufacturer.
Fuel efficiency affects how much it costs to operate and maintain a vehicle, and it varies widely between types of vehicles and different models. Generally, newer cars tend to be more fuel-efficient than their older counterparts, thanks to improvements in technology, materials and aerodynamics. Other factors that might affect fuel efficiency include any mechanical issues with the engine and under-inflated tires.
Which safety features do you want in your new ride? In 2022, a survey by the Canadian Safety Council and Nissan Canada found that four out of five drivers are used to having at least one driver-assistance feature, and seven in 10 think these technologies can help them avoid getting into an accident.
Driver-assistance features can include adaptive cruise control, automatic engine braking, lane departure warning, forward collision warnings, blind spot detection, rear-view cameras and more. Many of these were once considered luxury features, reserved for higher-end models, but these are becoming increasingly common even on the base models of new cars. If having the latest safety features is a priority for you, buying a new car or a newer-model used car might be the better way to go.
While buying new does save you from worrying about hidden damage and mechanical issues, don’t write off all used cars as unreliable. Here are a few tips to follow when browsing used cars:
If you’re a bit of a gearhead and you want to customize your car to enhance performance—say, by upgrading the brakes with a racing kit or adding a turbocharger—you might be better off buying a used vehicle.
When you buy new, your vehicle will come with a manufacturer warranty, and most warranties will become void if you make significant modifications to the car. In that sense, new-car owners will have to wait anywhere from three to five years before they can freely modify their vehicles. Buying a used car without a warranty, on the other hand, means you can change whatever you like.
Which has the better variety to choose from, new or used cars? This one’s a matter of perspective.
Used cars offer a huge range of makes, models and years, and they’re available right now. If you’re set on a specific make, model, year and even trim, though, you may have to be patient and check listings frequently. You may find your car faster if you’re willing to order a car online. If you do that, though, you’ll forgo the test drive before buying. We recommend always test-driving a used car. Even if it has no mechanical problems, what if you just don’t like it?
New cars, on the other hand, are restricted to what’s available at the dealership. That’s not usually an issue, but in the past couple of years, high demand and supply-chain issues have meant long waits for buyers to get brand-new vehicles. Still, with new cars, you know exactly what you’re getting, plus you’ll enjoy the latest features and innovations.
Ultimately, deciding between a used car and a new car comes down to your priorities. If you have a strict budget and you need a practical commuter for everyday use, a quality used car could be an excellent choice. If you’re looking for something with more reliability and a better safety profile, a new car might be a better fit.
New and used cars each have their pros and cons, and you’ll need to figure out which factors matter most to you. Here’s a summary:
| Type of car | Pros | Cons |
|---|---|---|
| New | • Lower loan interest rate • More comprehensive, longer-lasting warranty • More fuel-efficient • Latest safety features |
• Higher price and faster depreciation • Higher insurance rates • Cannot be customized until warranty expiration • Current supply-chain issues may mean a long wait |
| Used | • Cheaper upfront fees • Slower depreciation • Lower insurance rates • Lower registration fees • Customizable without breaking a warranty • Wide variety to choose from |
• Higher loan interest rates • Warranties are not guaranteed • Less fuel-efficient • Depending on the model and year, might not have the latest safety features |
In addition to the pros and cons of buying new versus used, consider these questions before you buy any vehicle:
We’ve covered the differences in prices, depreciation, insurance rates and loan interest rates of new and used cars. But before you shop, calculate the total cost of owning a car, from initial cost to operating expenses to future expenses. This will help you decide whether you can afford to buy new or used.
As the saying goes, time is money! While buying a new car is fairly straightforward, you have to do more legwork for used cars. Here are just a few things you need to do before purchasing a used car:
Buying a new car means getting the latest technology and safety features, as well as a sure-fire warranty that protects against mechanical failure. However, when you buy new, you’re also likely purchasing at a higher price point and bearing the brunt of depreciation. If you have a bit of money to spare, there really aren’t any downsides to buying a new car.
Buying used, on the other hand, means sacrificing a few advancements and features to pay a much lower cost. And if you have the time and patience to look for newer used cars, you might be able to score one that’s nearly as good as new for a fraction of the price. For practical folks who don’t care about all the bells and whistles of buying a new car, even a used car with high mileage is a great alternative.
This is not advertising nor an advertorial. This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.
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