Should you buy used or new? Pros and cons of buying new vs. used vehicles

Buying a new vehicle is a process that requires a lot of thought. Which model, which options, which color, and most importantly, should you buy new or used? Both new and used cars offer distinct advantages and drawbacks, so let’s examine the options.

Vehicle Depreciation

Depreciation is the amount of value that an object loses over time. For example, if you buy a new item for $5,000, and it is only worth $3,500 as a used item, it has depreciated $1,500. When you translate this into cars, the quandary over new versus used starts to lean towards buying used.

Let’s say you’re looking at a 2020 Ford Escape with a sticker price of $34,000. The benefit of buying a new one is that you can outfit it with any colours and options you want and get the full factory warranty. It will have no kilometres on the clock. It’s a brand new truck that no one outside the factory/dealership has driven before. So you gleefully drive your personalized truck for the next two years and cover 50,000 kilometres. At the 50,000 km mark it now is worth just  $22,000, which means you lost  $12,000 in depreciation over those last two years. Would it be better for your situation to buy a used Escape with just a few miles on it and save some cash?

For the price of a new vehicle, you get to choose the exact car you want, and it’s covered by a full factory warranty in case something goes wrong. Or you could wait a couple of years and get a partially-used version of the same car for a whole lot less.

Factory Warranties

When you buy a brand new car, you get the financial protection of a factory warranty. If the gearbox stops working, the engine goes kaput, or the satnav (satellite navigation system) stops working, you can pop down to the local dealer and they’ll fix it for you free of charge. If you buy a used car, the cost of those repairs could come out of your own pocket.

Of course, you can buy a certified pre-owned car, which has been inspected by a dealer and given an extended warranty. Or you could fork over some cash and buy an extended warranty to cover a used car. In any of these cases you’re going to be spending a little bit extra if you want that extra cushion of protection.

Purchase Options

When you acquire a new car in Canada, you’ll have the option to buy or lease. Buying obviously means that you’ll own the car outright at the end of your finance term. On the other hand, leasing costs significantly less because you’re financing the aforementioned depreciation over the term of the lease. And, when your lease is up, you can either buy the car from the leasing company, or swap it for a brand new model.

By contrast, used cars can’t be leased. Once you buy it, it’s yours. You upfront cost may be more, or you might have car loan payments, but at least when you are ready to buy your next car you have an asset you own to offset the purchase cost of the new vehicle.