Car Buying: New vs Used

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Buying a car involves making a lot of decisions, decisions that go much further than just choosing to get a car. Once that critical point has been reached, you also have to decide between makes and models for which the selection seems to truly get greater every year. Additionally, all cars come with features that keep changing through the years. This makes the decision-making really difficult as it is near impossible to know everything that needs to be known to make an informed car purchase. Even a common decision like buying a new or a used (also called pre-owned) car has become somewhat confusing and challenging. To clarify this issue, we highlighted the key components, both positive and negative, to inform you and hopefully help you make your decision, so keep reading.

When comes time to decide which car to buy, one very important factor gets taken into consideration, the car’s sale price. Usually we like the idea of spending less money upfront. Used cars are great for that as they are more likely to be less expensive. The reason behind that observed bargain is actually a result of depreciation. Depreciation is, in fact, greater during the first few years of new car ownership, which can reduce the sale price by up to 30%. Indeed, from the moment you drive off the lot, the value of your car immediately drops. As the car gets older, the depreciation index gets smaller. By the time the car celebrates its 10 year anniversary, its value is a fraction of what it once was. In general, the older the car is, the more value has already been lost and the less value will be lost in the future which is the main attraction of getting an older car.

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Most car buyers today, approximately 90%, will finance their purchases, so the next element worth looking at is interest rates. They are absolutely not the same for new cars and used cars. Ignoring the 0% or 0.99% interest rate incentives given by dealers on certain months, brand new cars will almost definitely have lower interest rates than used cars. Actually, used car financing rates tend to be nearly twice what’s assigned for new vehicles, this statement is excluding certified pre-owned vehicles (CPO). CPO vehicles are lightly used vehicles that are still within their warranty periods and are of certified quality, therefore they usually have lower interest rates. CPO vehicles will be covered more in depth in an upcoming post that will be uploaded in the next few weeks so keep an eye out, or subscribe to our email list below. The lower rates observed for new cars is meant to incentivize people to continue buying cars thus driving sales to manufacturers and dealers. This means that unfortunately, the older the vehicle will be, the shorter the duration of the loan will get and the higher interest rate will become. This is driven by the perception of older cars having lower life expectancies than newer ones.

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Before making your final decision you really need to plan for maintenance. In general, we would assume that higher manufacturer’s suggested retail price (MSRP) indicates a superior maintenance cost, but this isn’t always the case. To determine the maintenance cost of a vehicle you have to identify many factors, like the brand of the vehicle, the exclusivity of the vehicle/model, the number of performance components on the vehicle (e.g. luxurious features), but most important of all, the reliability of the vehicle and its components. Reliability should never be overlooked when making your decision to buy a car. This is one issue that we don’t have to worry too much about when buying a brand new car, most issues won’t happen for years to come, especially if it has a 5 year/100k warranty, for instance. However, used cars can also be very reliable, the most important part of determining the reliability is researching if there are common problems with the car and how the car has been treated up to now. For example, a 2-year old vehicle that has only 30,000 km may be a maintenance nightmare if the previous owner neglected maintenance and drove it ruthlessly for the total duration of ownership. On the flip side a 10-year old car with 150,000 km under the hood may still have a long life ahead of it if great care was taken to ensure proper functioning. Typically, German, British and Italian performance cars that are more exclusive will also be very expensive to maintain and repair compared to the average Japanese or American vehicle. There will be another post on various car brands in the future so stay tuned! If you haven’t sign up to our mail list yet, you can do it now (See above).

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The governments effort to fight climate change has lead to the adoption of stricter regulation for manufacturers. In the car manufacturing industry, this has driven the vehicles to become more fuel efficient as the years pass. We could only assume from this statement that new vehicles will always be more fuel efficient than used one. Even though this is often the case, some exceptions may still happen. For example, innovation has brought to us the common use of turbochargers adding horsepower and torque through maximizing air efficiency therefore allowing auto makers to lower engine displacements. Lowering the engine displacement means less fuel is required to fill the cylinder and creating the bang that results in a revolution that powers the vehicle. More new vehicles than ever are now equipped with turbochargers, this lowers the fuel consumption, which could be a very important factor as well when purchasing a vehicle.

Here is a summary of the key points listed above:

NewUsed
PositiveTypically, you can expect a brand new cars to not require any repairs for years to come. They are usually very reliable since their standards are set quite high amongst the manufacturers. Manufacturers desiring to back up their claims of quality must then provide their vehicles with longer warranties in efforts to boost notion of confidence. Interest rates are kept low in order to promote new car sales throughout the years. Also, let’s not overlook the technology and engineering that is used to build these new cars allowing for superior fuel efficiency.Considering that the car has already lost a large portion of its value means the sale price is never going to be much lower. Depending on low mileage and young age, the reliability is likely to not be any lower than in new cars, especially if the car is only a couple of years old with 20-30 thousand km travelled. You also have the benefit of relying on consumer reports to inform yourself on any issues that you might come across with the make or model, since they had a few years to test and observe.
NegativeEvidently, the instantaneous loss of value and the higher sale prices are ungloomy aspects of buying a new car. The profit margins are often low which is really not favourable for negotiation (However, if you want to ensure you get the best price, contact us, see the end of post). Additionally, it often take time for consumer reports to find and reveal potentially important issues regarding brand new car models.At worst, you can expect not be able to know anything about the car’s history, which could potentially lead to a inadequate evaluation of reliability. To solve this issue, some may ask for the procurement of the maintenance history receipts. Apart from certified pre-owned vehicles, used vehicles will have a higher interest rate for financing. The overall condition of the vehicle can also be less than ideal if the previous owner has treated it harshly through neglects or damages.

I hope this article has help you clarify everything for you and had been able to allow you to determine which avenue to head down next. If you want to be sure to not lose out on potentially massive savings, give us a call!

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