New vs Used: Which Should You Buy?
Quick Answer
Should you buy new or used? Used cars (1-3 years old) offer the best value—someone else absorbs the 20-30% first-year depreciation. Buy new if you want full warranty, specific features, or 0% financing promotions. Certified Pre-Owned (CPO) offers a middle ground.
One of the first decisions every car buyer faces is whether to buy new or used. For first-time buyers in Canada, this choice can significantly impact your finances for years to come. Let's break down everything you need to know to make the right decision.
The Depreciation Reality
Here's the uncomfortable truth about new cars: they lose value the moment you drive off the lot.
How Fast Do New Cars Depreciate?
- Year 1: 20-30% value loss
- Year 2: Additional 15-18% loss
- Year 3: Additional 12-15% loss
- After 5 years: Most cars are worth 40-50% of their original price
Example: A $40,000 new car could be worth:
- After Year 1: $28,000-32,000
- After Year 3: $20,000-24,000
- After Year 5: $16,000-20,000
Watch Out
Depreciation is the single largest cost of car ownership for new vehicle buyers. On a $40,000 car, you could lose $20,000+ in value over 5 years - that's $333/month in depreciation alone, before payments, insurance, or gas.
Why Used Cars Make Financial Sense
When you buy a 2-3 year old vehicle, someone else has already absorbed the steepest depreciation. You get a nearly-new car at 30-40% less than the original price.
Quick Tip
The "sweet spot" for used car value is typically 2-4 years old with 30,000-60,000 km. You avoid the worst depreciation while still getting years of reliable service.
Certified Pre-Owned (CPO) Programs in Canada
Certified Pre-Owned vehicles offer a middle ground between new and used, with manufacturer-backed warranties and thorough inspections.
What Makes a Car "Certified"?
CPO vehicles must meet strict criteria:
- Age limit: Usually under 5-6 years old
- Mileage limit: Typically under 120,000 km
- Inspection: 100-200 point manufacturer inspection
- Reconditioning: Any issues must be fixed before certification
- Clean history: No major accidents, flood damage, or salvage titles
Major CPO Programs in Canada
Toyota Certified Used Vehicles:
- 160-point inspection
- 12-month/20,000 km comprehensive warranty
- 7-year/160,000 km powertrain coverage
- Roadside assistance included
Honda Certified Pre-Owned:
- 100+ point inspection
- 7-year/160,000 km powertrain warranty
- CarFax Canada report included
- Exchange privilege within 7 days
Hyundai Certified Pre-Owned:
- 120-point inspection
- 5-year/100,000 km comprehensive warranty
- 24/7 roadside assistance
- 30-day exchange policy
ON, BC, AB
CPO warranties are valid across Canada, so you can get warranty service at any authorized dealer regardless of where you purchased the vehicle.
CPO vs Regular Used
| Feature | CPO | Regular Used | |---------|-----|--------------| | Price | 5-10% higher | Lower | | Warranty | Manufacturer-backed | None or limited | | Inspection | Comprehensive | Varies by seller | | Peace of mind | High | Lower | | Financing rates | Often better | Varies |
Quick Tip
CPO premiums are often worth it for first-time buyers. The extra $1,500-3,000 gets you warranty protection, inspection assurance, and often better financing rates.
Warranty Differences
Warranties are a major consideration when choosing between new and used.
New Car Warranties
Most new vehicles in Canada come with:
- Bumper-to-bumper: 3-5 years / 60,000-100,000 km
- Powertrain: 5-10 years / 100,000-200,000 km
- Corrosion: 5-12 years (important for Canadian winters)
- Roadside assistance: Usually included for warranty period
Best warranties in Canada:
- Hyundai/Genesis: 5 years comprehensive, 10 years powertrain
- Kia: 5 years comprehensive, 10 years powertrain
- Mitsubishi: 5 years comprehensive, 10 years powertrain
Used Car Warranties
For non-CPO used vehicles:
- Private sale: No warranty (sold "as-is")
- Dealer sale: May include short-term warranty (30-90 days)
- Extended warranties: Available for purchase, but read the fine print
Watch Out
Third-party extended warranties vary wildly in quality. Some exclude common failures, require specific repair shops, or have high deductibles. Always read the full contract before purchasing.
ON
Ontario's OMVIC requires dealers to disclose if a vehicle is sold "as-is" and have you sign a separate acknowledgment. "As-is" means no warranty coverage whatsoever.
Financing Rate Differences
Interest rates can vary significantly between new and used vehicles.
New Car Financing
New cars often qualify for:
- Promotional rates: 0-2.99% from manufacturer financing
- Standard rates: 4-7% from banks/credit unions
- Longer terms available: Up to 84 months
Calculate payments with promotional rates
Used Car Financing
Used vehicles typically see:
- Bank rates: 6-10% depending on age and your credit
- Credit union rates: Often 0.5-1.5% lower than banks
- Shorter terms: Usually maxed at 72 months for older vehicles
- Age restrictions: Many lenders won't finance vehicles over 7-10 years old
Quick Tip
Credit unions often offer the best used car rates in Canada. Meridian, Coast Capital, and Desjardins frequently beat big bank rates by 1-2%.
The Real Cost Comparison
Let's compare total costs:
New Car ($40,000 at 2.99% for 60 months):
- Monthly payment: $718
- Total interest: $3,080
- Total paid: $43,080
3-Year-Old Used ($28,000 at 6.99% for 60 months):
- Monthly payment: $554
- Total interest: $5,240
- Total paid: $33,240
Savings with used: $9,840 (even with higher interest rate)
Compare your own new vs used scenarios
Insurance Cost Differences
Insurance premiums differ between new and used vehicles.
Why New Cars Cost More to Insure
- Higher replacement value: More expensive to replace if totaled
- Repair costs: New parts and technology cost more
- Theft target: Some new models are targeted by thieves
- Required coverage: Lenders require comprehensive coverage
Used Car Insurance Advantages
- Lower premiums: 10-30% less than equivalent new models
- Flexible coverage: Can drop comprehensive/collision on older vehicles
- Lower deductible impact: Deductibles are a smaller percentage of value
ON
In Ontario, insurance rates vary dramatically by postal code. A new car in Brampton might cost $4,000+/year to insure, while the same car in Ottawa could be $2,000. Factor in your location when budgeting.
BC
In BC, ICBC provides basic insurance, but optional coverage varies by vehicle value. A new $50,000 vehicle will have significantly higher optional coverage premiums than a $20,000 used car.
Insurance Savings Example
| Coverage | New Car ($40,000) | Used Car ($20,000) | |----------|-------------------|-------------------| | Annual premium | $2,400 | $1,800 | | 5-year cost | $12,000 | $9,000 | | Savings | - | $3,000 |
When Buying New Actually Makes Sense
Despite the financial arguments for used, there are legitimate reasons to buy new.
1. Safety Technology
Newer vehicles have advanced safety features:
- Automatic emergency braking
- Blind spot monitoring
- Lane departure warning
- Adaptive cruise control
These features can prevent accidents and may qualify you for insurance discounts.
2. Fuel Efficiency and Emissions
New vehicles often have:
- Better fuel economy (saving hundreds per year)
- Lower emissions (better for the environment)
- Electric/hybrid options with government incentives
BC, QC
BC offers up to $4,000 rebate on new EVs, and Quebec offers up to $7,000. These incentives typically don't apply to used EVs, making new electric vehicles more competitive.
3. Manufacturer Incentives
New car incentives can reduce the price gap:
- Cash rebates: $1,000-5,000 off
- Loyalty discounts: For existing brand customers
- Grad programs: Special rates for recent graduates
- 0% financing: Eliminates interest costs entirely
Quick Tip
Stack incentives when possible. A $3,000 rebate plus 0% financing on a new car can make the total cost very competitive with used options.
4. You Know the Full History
With a new car:
- No previous accidents
- No hidden mechanical issues
- No wear from previous owners
- Full warranty from day one
5. You Plan to Keep It Long-Term
If you'll keep the car for 10+ years, depreciation matters less. The cost-per-year of ownership becomes similar between new and used.
Canadian-Specific Considerations
Winter and Rust
Canadian winters are tough on vehicles:
- Salt damage: Accelerates rust, especially in Ontario and Quebec
- Cold starts: Hard on engines and batteries
- Winter tires: Required or recommended in most provinces
Watch Out
Always check for rust on used vehicles, especially on the undercarriage, wheel wells, and rocker panels. A cheap-looking used car can hide thousands in rust damage.
CarFax Canada Reports
Always get a vehicle history report:
- Accident history: Even "minor" accidents can cause hidden damage
- Service records: Shows maintenance history
- Registration history: Multiple provinces could indicate odometer issues
- Lien status: Ensures no money is owed on the vehicle
Quick Tip
CarFax Canada reports cost $50-60 but can save you thousands by revealing hidden problems. Never skip this step on used vehicles.
Importing from the US
Some buyers consider importing used vehicles from the US:
- Pros: More selection, potentially lower prices
- Cons: Exchange rate, import fees, potential warranty issues, conversion costs
ON, BC, AB
US imports require a Registrar of Imported Vehicles (RIV) inspection, recall clearance, and potentially modifications to meet Canadian standards. Budget $1,500-3,000 for the import process.
Making Your Decision
Choose New If:
- You want the latest safety technology
- Manufacturer incentives are strong
- You plan to keep the vehicle 8+ years
- You're buying an EV (for incentives)
- Peace of mind is worth the premium
Choose Used If:
- Budget is your primary concern
- You want to minimize depreciation loss
- You're comfortable with a pre-purchase inspection
- You're buying a reliable brand (Toyota, Honda, Mazda)
- You plan to keep the car 3-5 years
Choose CPO If:
- You want the best of both worlds
- Warranty protection is important
- You're financing (better rates available)
- You're a first-time buyer wanting security
Key Takeaways
- Depreciation is the biggest cost of new car ownership - 20-30% in year 1 alone
- CPO vehicles offer warranty protection and inspection assurance at 5-10% premium over regular used
- Financing rates are lower on new (often 0-3%) but used cars cost less overall even with higher rates
- Insurance costs 10-30% less on used vehicles
- Buy new if you want latest safety tech, EV incentives, or plan to keep 10+ years
- Buy used to save money on depreciation and get more car for your budget
- Always get a CarFax report and pre-purchase inspection on used vehicles
Ready to Calculate Your Budget?
Use our calculators to compare costs for new vs used vehicles:
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