Car Buying Guide – Part 3 – Buying New vs.Used Vehicle

Choosing to buy a new vehicle versus buying used can sometimes be a tough decision. The financing options can vary drastically from financing a new vehicle vs. financing a used vehicle. The reality is this; it’s hard to beat 0% financing offered on some new vehicles, and not to mention the manufacturers warranty that you get with the car. Furthermore, by purchasing a new vehicle you know that it was never driven before and you can look after your new purchase the way you want right from the start.

However, one thing that most people forget is that even with an attractive financing rate of 0%, as soon as they drive the car off the dealers lot, the car becomes used and the asset significantly depreciates in the tune of at least 20%. The depreciation depends strongly on the vehicle make and model as some vehicles depreciate faster than others.

WHY I CHOSE A USED VEHICLE 

Used cars make up roughly 60% of all the sales in Canada. In my eyes purchasing a new-used vehicle is equally as good as purchasing a new vehicle without the huge 20-30 per cent deprecation wallop within the first year. There are benefits to having a new car, such as warranty, but if researched right you can buy a used vehicle with extended manufacturers warranty. I purchased a 2009 BMW which came with extended 2 year warranty or as BMW Canada calls it; “BMW Certified Series.”

Secondly, by purchasing a used vehicle I  avoided the following additional charges;  Freight charge, PDI charge, up-selling, gas tax, tire tax, additional mystery charges and paid a reduced sales tax.

Finally, financing a new-used vehicle made sense to me. My down-payment of $2,500 was not significant enough to impact a lower monthly payment on a new vehicle. The financing rate of 2.9% was attractive enough, and even if I chose to buy a brand new BMW, they lowest financing rate I would have been able to get would have been in the range of 0.9%-1.9%, so for an additional 1% I was able to finance a new-used vehicle that was serviced at the dealership (service records show) that already absorbed the majority of the depreciation.

WHAT IS CERTIFIED PRE-OWNED (CPO)?

Knowledge is power, and even a little knowledge can go a long way in your vehicle buying process. Some research ahead of time will give you the necessary confidence when you walk into the dealership. I’m fortunate to have been around cars from a young age, so I have more car knowledge than the average person who walks into a dealership. More importantly though I did my research ahead, compared the car I wanted to others in the market and compared some more to the competing brands in the same luxury class. And the hard work paid off. The sales representative was sort of baffled and surprised at how much I already knew about the vehicle at hand, BMW vehicles. and the BMW operating procedures. Maybe he was just baffled when I threw out the wild card; “One of my closest friends works as a mechanic at a local BMW dealership”, whatever the case was it worked for me.

So, let’s get back to talking about Certified Pre-Owned (CPO) vehicles. If you’re in the market for a vehicle, and are looking for a low risk bargain, certified pre-owned vehicles offer a great peace of mind for much less money than the price of a new vehicle. And just to be clear, CPO vehicles are certified and inspected in the manufacturer’s program, and sold through the authorized dealer.

For example, before BMW vehicles become certified pre-owned they go through a rigorous 150 point inspection by a factory trained tech. Components such as brakes, tires and any other parts are changed to “NEW” in order for the vehicle to become pre-owned certified. Essentially the vehicles is brought to like-new condition upon a successful certification.

However, you need to keep in mind that there is no industry standard for certified pre-owned vehicle programs. Therefore,  the warranty – varies from manufacturer to manufacturer. Always ask ahead of time what’s included in your extended warranty. In my instance, the vehicle I purchased got a 2 year extended warranty or 150,000km whichever comes first. All the drive mechanical components are covered bumper to bumper in that time, minus cosmetics such as paint and wearable items such as brakes.

ADVANTAGES OF NEW VEHICLES

It’s Not Used —  A new car hasn’t been in any accidents, hasn’t been mistreated, no smell funny, has seen no wear or tear, and comes with a clean history that includes only being driven off the line, onto a transporter, and around the dealer’s lot. Furthermore, your new car will be made to order, the way you want it.

Warranty — New vehicles come with new warranties. Typically 4 years or 80,000km by most manufactures.  You can go the certified pre-owned route, but the best warranty you can get—without paying extra—will be the one that comes with a new car from the manufacturer.

Gadgets & Gizmos — The newer the car, the more technically inclined it will be.  Everything from multimedia and navigation interfaces are constantly evolving and improving, so if you have to have the latest in gadgets then you’ll have to buy new.

Safety — Every year vehicle safety laws become ever more stringent, vehicle manufacturers are forced to change the way vehicles are built and the safety systems with which they are equipped. For example, tire pressure monitoring is now mandatory on all vehicles sold in the U.S. by 2012.

Higher Fuel Efficiency — Every year vehicles are getting more fuel efficient, even while simultaneously getting more powerful.

Maintenance — Majority of the luxury brand vehicles include free scheduled maintenance for a certain amount of time or mileage.

Financing - New vehicles get better financing rates which typically range from 0% to 1.9%. However, most luxury brands don’t offer 0% financing for the simple reason they are luxury. Research your financing options well ahead.

ADVANTAGES OF BUYING USED

Price — Comparing apples to apples, a used car is going to be less expensive. The other beauty of buying used is that it allows the buyer to step up into a higher model or into that luxury brand.

Depreciation — As indicated above, a new vehicle will stand to lose 20% in deprecation within the first year.  Buying a used vehicle, you avoid the deprecation, because you allowed someone else to absorb it before you.

Insurance Rates — Financing rates and insurance rates share the same thinking; typically in most cases the older the car, the cheaper the insurance.

Choice — A wider selection can add to the length of the search, simply because there are way more used cars available for sale at any given time versus new cars. Just make sure you make the right choice and you’re happy with it.

FINAL THOUGHTS

Truth is that there is no right or wrong answer on whether to purchase a new or used vehicle. Everyone’s scenario is different, so doing what’s best for your scenario is the ideal way to go. I can say this though; If money is an issue, and you do your homework, used will always be a better deal. Shopping for your next car, used or new is a full-time job of it’s own. Take your time, and don’t take shortcuts. Doing your homework well ahead can save you a lot of dough at purchase time, and a lot of aggravation in the future. Remember that buying a used vehicle allows you to get into a better equipped card than a similarly priced new car – just some final food for thought. 

In case you missed it, be sure to check out parts 1 and 2 of the car buying guide series:

Part 1 -Bought a new car

Part 2 - Financing your new vehicle