Your first vehicle - should you buy new or used?

#Managing your money

Owning a vehicle means having the freedom to go where you want. But deciding on new or used can be difficult

You’ve decided to buy your first vehicle. Congratulations! 

Owning a vehicle means having the freedom to go where you want. It means you can explore your world, both near and far. It means having the freedom to explore this amazing and beautiful country we live in.

Is buying a new vehicle worth it?

When you buy new, you have the comfort of knowing that no one’s driven the vehicle aggressively or neglected regular maintenance. Also, most new vehicles come with a comprehensive or “bumper-to-bumper” warranty (as opposed to a powertrain warranty, which covers considerably less) meaning the manufacturer will repair most problems free of charge. This covers your vehicle for a set period, such as 4 years or 60,000 kilometres, whichever comes first (though this can vary widely; some manufacturers offer longer warranties).

Although some warranties can last up to a decade, they may not transfer to a second owner, which could hurt resale value. Also, keep in mind that most bumper-to-bumper warranties don’t include coverage for regular maintenance, like replacing the brake pads, tires or fluids.

A new vehicle is typically far more expensive than a used one and its value declines as soon as you drive it off the lot. On average, a vehicle’s value declines by 34% in the first year alone. In other words, if you paid $30,000 for a new vehicle, it would probably be worth about $20,000 at the one-year mark.Footnote 1

Used cars may be cheaper to buy

Buying used also has its advantages. A used vehicle often costs thousands of dollars less than a new one, even if it’s only been driven for a few thousand kilometres.

Plus, many used vehicles may still have warranty remaining from their original owners. Make sure to clarify with the dealer that the warranty is transferable; if it’s not, that could mean you’re on the hook for any repairs that come up following your purchase. And remember that if your car was built overseas, its parts may be made there, too. That means they’ll have to be shipped to your mechanic in Canada, and that can add a lot to the repair costs.

Owning a vehicle means having the freedom to go where you want.
Opens a new website in a new window

Learn more about a used car before making an offer

Although some dealers provide you with details about the car’s history, it can be difficult to verify that information. For a price, services that specialize in tracking a vehicle’s history can show if it’s been in an accident. This vehicle history report should also show if a car’s suffered water damage; how many people have owned it; if there are any liens and if anyone tampered with the odometer.

Unfortunately, while these services can provide lots of information about a vehicle, they can’t tell you how the previous owner or owners treated it. For example, a vehicle history report won’t reveal if the last owner replaced the oil or transmission fluid on time or if they drove the car aggressively. It also won’t show if the vehicle has been customized in a way that’s not obvious – for example, swapping out the exhaust or speakers. It’s important to give a used vehicle a thorough inspection, and it may be wise to ask the dealer if you can have your preferred mechanic look it over.

Shopping for the right automotive dealer

When buying used, you’re relying on the dealer to tell you everything they know about the vehicle and its history. Some will be forthcoming, while others may try to sell vehicles with sketchy pasts.

In many ways, you’re shopping for the right dealer as much as you’re shopping for the right vehicle. If you’re worried a dealer isn’t being completely honest with you about a car’s history or value, or if the deal seems just a bit too good to be true, it may be time to look elsewhere.

In Canada, the production, importing and selling of vehicles are governed by the Motor Vehicle Safety Act, which is designed to help protect buyers from dealers who intentionally mislead people about a vehicle’s history or try to sell cars that aren’t safe. If you find yourself in a situation where you think a dealer is acting in a misleading way, it may be wise to review the act or consult a lawyer.

Insurance – is it cheaper if the vehicle is new or used?

When buying any vehicle, you need to think about its resale value and maintenance and insurance costs. While it’s safe to expect that a convertible with a powerful V8 engine costs more to insure than a 4-cylinder compact car, it’s not always as clear if a used vehicle will cost less to insure than a new one.

Automotive insurance rates are determined by a variety of factors, from your personal driving record to the type of vehicle you’re buying to your geographical location. Insurers also consider the cost of maintaining your vehicle and the likelihood it will be stolen. (The Insurance Bureau of Canada notes that “the harder your car is to steal and the less expensive it is to repair, the less you pay for insurance.”Footnote 2)

Do your research to get the best rate on your insurance. Call a few providers to get a quote for the makes and models you’re interested in buying. Even if you’re not currently insured through that company, most will provide you with a quote.

So, what’s the best course of action? As we’ve outlined above, it depends on your budget, the type of vehicle you want to buy and your buying options.


footnote2"How Car Insurance Premiums are Calculated,” Insurance Bureau of Canada.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.


Reduce debt or invest?

Plan for freedom today

Freedom 55 Financial security advisors are with you every step of the way. Not only will they guide you through the financial security planning process by focusing on your personal needs and goals, they’ll help you understand your options so you can make smart choices. And as your needs change, your financial security plan can change, too. That’s true financial freedom.

Find an advisor