New Car Versus Used Car: Which One is a Better Purchase?

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A dilemma that every immigrant experiences before their first car purchase is whether to buy a new car or a used car. Folasade Adebawo, a Saskatchewan resident who arrived in Canada in June 2020 faced the same dilemma that resulted in a horrifying experience.  

“When we arrived, we wanted to buy a car. We looked at different options…and wanted to go for the cheapest option. We had to balance (our) need and budget. With two kids and winter about to start, we got a really good SUV model from a known person at $2500. When I first drove the car after buying it, I had the feeling that the car was bad. From that point on, visits to the mechanic became frequent because a lot of problems were discovered in the car. It was a moving car with loads of faults. In just a month, we had spent almost $1,100 on repairs. We were spending a lot of money on Uber and repairs. We informed the seller that we would like to return his car and have our money. Fortunately, he returned $2000. After that horrifying experience, I didn’t want to go through that ordeal again and within two months of moving to Canada, we got a new car.”  

To avoid having the same experience with Folasade, many immigrants search for the pros and cons of buying a new or used cars. This article will answer that question and help you make informed car purchase decision as a newcomer.  

Categories of cars 

According to Jasdeep Singh Dhupia, Sales Representative at Nawab Motors, Brampton, Ontario, there are three categories of cars. “One that people finance for two to three years and the other is cash cars. And the third is new cars.” 

  1. Certified pre-owned cars: are used cars sold by car dealers, and have been inspected and certified to be in excellent working condition. They also come with some manufacturer warranty and because they are sold by dealers, you can finance your purchase. 
  1. Used cars: are sold by the end user on a full payment basis. You either have to get a mechanic to check the true condition of the car or buy it in good faith as they do not come with any warranty or guarantees. 
  1. New cars: are sold by the manufacturer or dealers and have never been driven by anyone. They come with full manufacturer warranty and the purchase can be financed. 

Which is a better purchase? A new or used car?  

Utkarsh Singh Kohli, a Product Advisor at Kamloops Kia in British Columbia believes a “new car works a bit better than a two to three-year old car. In fact, new cars have a lower interest rate, as low as 0%. It is up to the immigrant to decide which makes more sense.”  

An anonymous sales and leasing consultant at Mazda, Alberta, thinks “if you’re new to the country, it’s better to go with a pre-owned car because you won’t have a good credit score and for brand new cars, it’s hard to get approval.”  

A representative from FFUN Group, a Saskatchewan-based dealership, says “there isn’t one that is better than the other. It is what works best for each need. Throughout COVID, there has been a shortage of new car inventory, and as a result of this market, there is an increase in the availability of used vehicles.”  

Should you buy a used car from a dealer or an end-user?  

Utkarsh says, “when buying a used car, buying from a dealership is beneficial since safety and inspections are done by every dealer. They show the car facts, damages are disclosed, rectifications are done, there are warranties, and follow-ups are easier with a dealership than an end-user.”  

Jasdeep advises immigrants to “get a car from a dealer since they are liable to give you the right information and right car. You might get cheaper from private sellers, but you will be completely unaware of the hidden expenses.”  

FFUN representative recommends “to purchase through some dealership, whether online or brick and mortar. Going through a dealership ensures the vehicle has been reconditioned. At FFUN, we recondition vehicles to a high standard. When buying privately, there is no warranty and often no standards. Plus, you have no idea what the history is, and you can’t finance through a private seller”.    

The Alberta-based consultant suggest you “buy from authorized dealers instead of a private seller because they (authorized dealers)  sell certified cars with warranty. Most of the private sellers sell cars without warranty. Moreover, dealers help you with financing, which builds credit score for new immigrants.” 

What factors should you consider before making a purchase?  

  1. Credit history: For immigrants, Utkarsh says, “the primary factor is the credit score. It decides if your loan will get approved or not.” Financing a car purchase is almost impossible without a credit history. Immigrants who cannot access a loan because of their almost non-existence credit history should consider buying a used car from an end user in the interim.  
  1. Financial situation: You have to review your financial situation to know how much you can afford to spend on car loan repayment monthly if you choose to finance a car purchase. Or how much chunk money you can afford to spend on buying a used car from an end user, keeping in mind the cost of repairs, should the car develop faults. Utkarsh states, “for a sales guy, it is their job to sell a car. Before making that purchase, buyers should ensure their financial situation is in tandem with their purchase. A car should not become a liability but a pleasure to you.” 
  1. Resale value: the Alberta-based consultant suggests that you “should consider a reliable brand according to budgets because of low maintenance cost and more resale value.”  
  1. Your need: what type of car do you need based on your location, type of job, and family size? The type of car you need might help you decide between new and used. FFUN Group representative says, “it is important to understand their need for the vehicle. In addition, they should know what their budget is, lifestyle, and family size.”    

From a 360-degree perspective on cost, affordability, finance, and insurance, what are the pros and cons of both new and used cars?  

Alberta-based Agent: the interest rate on new cars is less than that of used cars, and it comes with factory warranty for three to five years which gives peace of mind. Also, you can upgrade your new car to a new model frequently. But the first-year depreciation is approximately 20 per cent, followed by 10 per cent each year afterwards. Sometimes for new immigrants, it’s hard to get approval for brand new cars because of the price. 

Jasdeep: the interest rate for new cars is the best in the market. You get lowest interest rate and longest term of the loan. The biggest disadvantage of a new car is that even if the car has zero miles, the moment the car is out of the showroom, the price drops by 20 to 30 per cent. Immigrants are looking to have more assets. Having a loss already is not an ideal thing to do. 

One vital benefit of a used car is that major depreciation has already been taken care of by the first owner so you as a buyer will not have to incur that loss. Also, second-hand car’s depreciation would be around 5%, unlike the new cars.  

Although depreciation is less for used cars compared to new cars and there’s wide range of options to choose from according to your budget, used cars financing have higher interest rate.  

For used cars from private sellers, there’s no loan involved, but it has a higher risk. Cash cars that have a high mileage may have had a lot of owners but the buying cost might be the cheapest. Still, there are a lot of hidden costs involved, like transfer of ownership, and mechanical repair cost.  

From an insurance perspective, it doesn’t matter if you buy a new car or a used car. The insurance company sees the feature, how old is the car, safety standards, crash tests, and your location. Used and new cars weigh equally in pros and cons when it comes to insurance.  

What is the current purchasing trend among immigrant buyers?   

Utkarsh: Almost 80 per cent of the student buyers have a budget in mind; they require a car to help them reach their job.   

Alberta-based Agent: As many as 70 per cent of new immigrants prefer to go with pre-owned cars because there’s wide variety of options to choose from according to their budget.  

Jasdeep: Majority of immigrants go for used cars, and that is the smartest decision to go with. The most popular brands among used cars are Honda, Toyota and Hyundai. In my opinion, new cars for newcomers are not a good investment.  

Tips and tricks for car purchase 

Utkarsh: Know what you are doing before signing the paperwork for the final purchase. If financing, make sure the car is under warranty. Understand the car before buying and make sure it makes sense for you. 

Alberta-based Agent: Before buying a car, buyers should check insurance quotation first because new immigrants sometimes pay even more for their insurance as compared to their car payments as they have no experience and thus the insurance payments are higher. And most importantly, when buying a used car always check the Carfax report. 

Jasdeep: Carfax report is critical. Carfax is basically an organization that has every car in Canada reported on it. For example, if the car was imported, it’s history, or if it was stolen, had a factory recall or accidents, it has everything with the help of Vehicle Identification Number (VIN). Immigrants should definitely ask two questions, when looking to finance a car. They should thoroughly check the term of the loan, monthly instalments and interest rate.  

FFUN representative: Whether you are buying new or used, it doesn’t matter as there are options in place or available to ensure you and your vehicle is protected. It is important to conduct your own research on brands, makes, and models. Narrow it down to your top three, so you aren’t wasting time test-driving multiple vehicles. Find a vehicle that fits your needs. Ask the dealership what they can provide. Do your research on dealerships and ensure they are reputable.   

Dhruvin Jariwala, Automotive Service Advisor at Highbury Ford, Ontario, has a strong inclination towards pre-owned cars. Dhruvin says since he landed in Canada five years ago “till now, I have purchased two pre-owned cars. Your good or bad experience completely depends on what dealership you buy from, a good one or a shady one. Pre-owned cars are cheaper. I got a premium vehicle at a cheaper price. There were no extra expenses that I incurred after the purchase.”  

Dhruvin suggests, “buy from a reputed dealership, test drive it on the highway, get a Carfax report and also compare the prices”. 

From Folasade’s experience, she says, “buying a used car is a game of luck. If I had to do this again in a new country, I would always go for a new car. To be honest, buying a new car is not a luxury but a necessity in Canada.” 

Harita Dave
Harita Dave

A newbie in Canada, who couldn’t forgo the love for writing even in a new country. A journalist at heart, who has ventured into the world of finance. I don’t wish to be #justanotherimmigrant in Canada. An ardent animal lover who would choose dogs over men any day!

Have a story for Harita, email her at harita@immigrantmuse.ca

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