New cars vs. used cars

It’s the age-old question that every car buyer needs to decide: should I get a new or used car? A new car won’t have the same risk or wear and tear as one that’s been used, but it’ll cost you more.

New vs. used cars in a nutshell

Compare your financing options for new and used cars

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Name	Product	Loan Amount	Interest Rate	Loan Term	Min. Credit Score	Requirements	Table description
Loans Canada Car Loans		$500 - $35,000	0% - 29.99%	3 - 96 months	300	Min. income of $1,800 /month, 3+ months employed	Compare rates from multiple lenders.	Complete a single application to get quotes from different lenders. Bad credit, CERB and EI borrowers considered.	Go to site More Info	Compare	loading Fetching your data...
goPeer Car Loan		$1,000 - $25,000	8.00% - 31.00%	36 - 60 months	600	Min. income of $40,000 /year	P2P platform with competitive rates.	Canada's first regulated consumer peer-to-peer lending platform that connects creditworthy Canadians looking for a loan with Canadians looking to invest.	Go to site More Info	Compare	loading Fetching your data...
AutoLoanProviders		$7,500 - $85,000	3.99% - 29.99%	12 - 96 months	300	Min. income of $1,800 /month, 1+ months employed	Available in Ontario only.	Apply online and get your new vehicle delivered to your door anywhere in Ontario free of charge. All credit scores considered.	Go to site More Info	Compare	loading Fetching your data...
CarsFast Car Loans		$500 - $75,000	4.90% - 29.90%	12 - 96 months	300	Min. income of $1,800 /month, 3+ months employed	Get a new or used vehicle delivered to your door.	Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs.	Go to site More Info	Compare	loading Fetching your data...
Coast Capital Car Loan		$10,000 - No Max.	Varies	18 - 84 months	650	Able to service debt payment of $300/month	Competitive rates and flexible terms.	Finance new and used vehicles from one of Canada's largest credit unions. No credit union membership required. Available across Canada except SK, QC, NT, NU, YT.	Go to site More Info	Compare	loading Fetching your data...
Splash Auto Finance		$10,000 - $50,000	9.90% - 29.90%	24 - 84 months	300	Min. income of $2,200 /month, 3+ months employed	Apply with any credit score.	Get financing for a new or used car. Auto loans for borrowers with fair credit, bad credit, no credit or bankruptcy.	Go to site More Info	Compare	loading Fetching your data...
LoanConnect Car Loans		$500 - $50,000	9.90% - 46.96%	3 - 120 months	550	No min. income requirement	Pre-approval in as little as 60 seconds.	Get access to 25+ lenders through this brokerage. Get your funds in as little as 24 hours.	Go to site More Info	Compare	loading Fetching your data...
Canada Auto Finance		$500 - $45,000	4.90% - 29.95%	3 - 96 months	300	Min. income of $1,500 /month, 3+ months employed	Get financing from partnered local lenders.	Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.	Go to site More Info	Compare	loading Fetching your data...
Carloans411 Car Loans		$500 - $50,000	1.90% - 19.99%	Up to 72 months	300	Min. income of $1,600 /month, 3+ months employed	High application approval rate.	Get connected with suitable lenders to finance your next car, van or truck. Check eligibility for this loan through LoanConnect.	Go to site More Info	Compare	loading Fetching your data...

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What factors should I consider?

• Price

  The price difference between a new and a used car depends on the age, model and condition of the car. The easiest way to see how much you’re saving by buying used is to compare how much it goes for new.

  Most cars depreciate by more than 10% as soon as they’re driven off the lot and can lose more than 20% after their first year of being driven.

  So if the new car is in near-perfect condition it shouldn’t cost more than 90% of a new model, but it may be worth even less. Many people reasonably believe that you can save a considerable amount of money by buying a slightly used car that’s maybe 1-2 years old.

  As of 2018, the average cost of a new car in Canada was around $36,100. You may be able to save at least $3,500 buying used. But these savings come with a price. There’s always a chance that there is something about the car’s history that has not been reported or has been misrepresented. Also, it may harder to customize a used car.

  Some financial analysts have noted that dealers are beginning to close the gap between the prices of new and used cars by offering more advantageous financing options for new cars (say, a 0.99% interest rate as opposed to a 5.4% rate for a used vehicle).

  Don’t make your decision based solely on the deal being offered to you. Calculate the actual dollar amounts of your car payments and the amount of interest you’ll pay over the entire course of the loan, and see whether the potential savings in buying a used car is truly worth it for you. Remember to consider the kind of driver you are and how much the car is likely to depreciate over time.

  Compare loans for new and used cars

• Vehicle options

  When you buy any car, your options are naturally limited to whatever is being sold. However, with used cars, you’re even more limited — you can’t buy what hasn’t found its way into the dealer’s lot. For example, you might find the right model in the wrong color or without a bluetooth option. Sure, you can get a shop to change it, but it will cost you more.

  On the other hand, opting for an new car provides you with more consistency. if you can’t find exactly what you want on the lot you can order it. Some manufacturers let you build the perfect car on site. This can get pricey, but if you know what you want, it could be worth the extra cost.

  If you’d rather visit a lot, you’re sure to find plenty of models with all sorts of extras. You can do your comparison shopping right there instead of spending hours online hoping to find the right used car.

• What shape the car is in

  You’re at risk of buying a lemon if you don’t know how to check a used car thoroughly. Fortunately, there are plenty of tips out there on how to buy a used car to make the buying process easier. However, there’s really no substitute for a genuine, in-person experience, so if you’re unfamiliar with cars and don’t have a trusted mechanic, it might be safer to buy new.

  A new car will have up-to-date safety ratings, and you’ll know that it’s been in no major accidents that could impact its reliability. If you’re not a car person, you can avoid the hassle of having to inspect a used car, hoping that its reported history is complete and accurate.

• Information available

  New cars come with a range of assurances and documentation from both the manufacturer and the dealer. Since you won’t have to worry about a previous owner, you can be fairly certain your car is in great shape — if it’s not, the manufacturer will be responsible for any mechanical problems.

  There are plenty of used cars with a detailed maintenance and repair history, but a used car might also be fraught with problems you won’t notice until later.

  When buying a used car, get a car history check from a company like CARFAX or AutoCheck before finalizing your purchase. A history report should highlight any outstanding financing and service history, including if it’s sustained damage in an accident.

• Warranty

  Don’t underestimate the importance of a manufacturer and dealer warranty. It makes a difference when you’re choosing between a used or new car.

  A new car comes with a warranty that guarantees reliability and performance. Many manufacturers have car warranties of 3-5 years or 40,000-60,000 kilometres. This can remain under effect for used cars as well, depending on how old they are and how much they’ve been driven — check with the dealer to negotiate a great deal for a car still under the manufacturer’s warranty.

  If the original owner purchased an extended warranty, then this could be included in the price of a used car. Always check the warranty documentation to make sure.

  Older used cars won’t be covered by a warranty, which can make them a risky option. Base your decision on the age of the car, its condition, its history and reports on how reliable it is. These should guide you when you’re choosing between a few older vehicles.

Financing options for new and used cars

There’s considerable overlap between used car loans and new car loans. Most lenders offer both to cover a wide range of consumers, but you’ll see a difference in the interest rates that are offered.

Financing a new car

It’s likely that if you have decent credit and are looking to buy a new car, you’ll be given a lower interest rate than someone looking to finance a used vehicle.

Since you’re still paying a premium price for a new car, you may need to borrow more. This means that whatever you’re saving on interest could be negated by the higher price tag on your new car. On the other hand, special offers on a new car may offset its higher price tag, and you may actually be getting a comparable or better deal than if you bought used.

Financing a used car

A used car may have a higher interest rate, but you’ll likely be paying less than you would for a new car. The downside? Some lenders only finance a used cars under a specific amount of miles or under a certain age.

Secured vs. unsecured loans

Secured loans can give you better interest rates because your using your car as collateral. This means if you default then your car can be repossessed by the bank.

If you aren’t interested in using your car as collateral, there are still other ways to finance your vehicle. You may want to consider an unsecured car loan.

Bottom line

Used cars are considerably cheaper, but you’re not getting the first-owner benefits that come with buying a new car. Take your personal financial situation into account, and be sure to take your time making this decision. After all, whichever you choose, it will likely be with you for at least a few years.

Frequently asked questions

• Can I use a personal loan to finance my next car?

  Yes. You can take out a personal loan for your next car. Personal loans are considerably more flexible, and you can find lenders just about anywhere — online, local banks, credit unions and more. However, you may be required to use your car as collateral or provide some other form of repayment assurance. Once you choose a personal loan provider, make sure you find out exactly what is required.

• How much should I spend on a car?

  The most commonly cited budget for buying and maintaining a car is 10% to 15% of your annual take-home pay. This percentage includes your monthly loan payment, normal expenses like gas and unexpected expenses like maintenance.

• Will my insurance premiums increase for a new car?

  They will likely increase because of the purchase of a vehicle, whether it’s new or used, but there’s no actual evidence that a new car costs more to insure than an older car.

  One of the most important factors affecting your premium is the make and model of your car.

  Insurance companies use that information to judge the risk of your vehicle being stolen – believe it or not, ordinary cars are more attractive to thieves than super expensive, sleek cars because of how much they can make by stripping more commonly-driven vehicles and selling the car parts.

  Insurance companies also look at the the cost of finding and installing replacement parts for your vehicle as well as the way that the car is likely to be handled by the driver (young adults cruising around in sports cars are viewed as more likely to push the speed limit than middle-aged adults driving their families around in minivans).

• Should I have my used car inspected by a mechanic?

  Yes. Since you’re not buying something right off the manufacturing line, you’ll want to have the car inspected by a professional and licensed mechanic before you finalize your purchase. If the mechanic finds any problems, you can negotiate the purchase price accordingly.

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