New vs. Used Vehicle Purchase: The Need to Know Guide
So, the time has come to buy a new vehicle? Or does it make sense to purchase used? And what are the advantages or disadvantages of these potential purchases? There is no definite answer, but depending on your needs, a solution is certain.
Each year an estimated 2 million new vehicles are sold in Canada, which accounts for an average purchase price of $40,000 CAD. If we assume a finance rate of 1.99% for 68 months, the total interest paid on the loan is $2,625. The total purchase price including tax (SK 11%) is $46,625. In Canada, the high average new vehicle purchase can be attributed to a larger market segment purchasing trucks and SUV’s. In a previous article, we discussed, How much does financing a car cost?
We chose the 2021 Civic Sedan LX ($23,400.00), with the Honda Plus 5-year 100,000km warranty ($1,185.00), and the 16″ Enkei M52 wheels & Michelin X-ICE Snow Tire Package ($1,768.00). The total price of the vehicle is $28,143.00 ($31,238.73 with taxes in Saskatchewan). In the end, financing car loan costs including taxes is $32,902.80.
In contrast Canadians average used vehicle purchase price is nearly $19,000. Assuming a higher rate of interest of 7.0% for 68 months, the total vehicle cost including tax would be $25,678. We must note, the total vehicle costs do not include maintenance through the vehicles loan terms.
We can see there is a large difference in the total amount paid over the car loan terms. There was nearly a $21, 000 discrepancy between the average used car price and average new vehicle, over the entire car loan terms. However, when comparing the new 2021 Civic Sedan LX ($23,400.00) we an approximate $7,000 difference, when compared to the average Canadian used vehicle purchase. The large difference in used and new vehicle pricing makes researching your needs and options important. As with any important purchase there are advantages and disadvantages to vehicle purchases.
Advantages…
New
- Lower maintenance cost required, as most companies offer extensive warranty packages.
- Higher resale value when properly maintained.
- Depending on model pricing new vehicles may have lower monthly rates over the car loan term.
- Most recent technological advancements and updates, which includes latest safety upgrades.
Used
- Best value for your money. The cost savings potential can be high but comes with increased cost risks associated with maintenance and upkeep.
- Resale value compared with used purchase price can be negligible, with some used vehicles selling higher than the original used purchase price.
Disadvantages…
New
- High initial depreciation, which typically ranges from 20-30% over the first year.
- Easy to overpay, as there are many add on packages dealers may try to up sell. Buyer beware.
- Higher monthly payments for new Car Loans
Used
- Reliability issues related to previous owner maintenance and regular wear and tare can be more costly.
- Customization is not an option here, but sometimes compromises need to be made.
- Time intensive to find the right vehicle. They are out there, but research and knowledge is key.