I need to buy a car. Soon my living arrangements will require me to have a vehicle to get to work. I will be using the vehicle primarily for commuting to and from work - so a lot of highway driving, and then in the evenings for social reasons.
I do not have any money saved, and will need to finance whatever I buy. I am debating whether to buy a new 2010 entry-level vehicle (such as a Mazda 2 or Nissan Versa) at 0 per cent financing, or if I should buy a "better" car that is used (say, a 2007 Honda Civic).
I have researched consumer reports and have found that the cars I'm interested in all have good ratings in the safety, fuel economy and reliability categories (which are my priorities). I have done my research in terms of Carfax reports on used vehicles and CarCostCanada reports on new vehicles so I am not worried about being taken advantage of in the pricing department, I just can't make my mind up if it's worth saving the (approximate) $5,000 to buy a lightly used car - especially when the used financing rates are so much more (7 per cent versus 0 per cent ).
So, in a nutshell, would you recommend I buy new or used?
- Emma in Ottawa
Let's summarize your situation. You're financing a car, with zero money down. Either you'll buy new, and enjoy the low (or no) interest rates which accompany that new-car smell - or you'll purchase a better used model, for less money, and deal with the higher interest-rate.
It's hard to beat the 0 per cent financing offered on some new vehicles, not to mention the manufacturers warranty. And, only by buying new can you be sure of how the car has been treated and looked after. Remember though, even at 0 per cent interest, you'll be driving a used vehicle as soon as you leave the lot, and quickly see the value of your asset depreciate. A new car loses an estimated 15 to 20 per cent of its value a year in the first few years.
Although you may enjoy driving the Civic more than the Nissan or Mazda, there is a greater chance of something going wrong with a used car. Without a warranty, you'll be faced with repair bills. A Honda powertrain factory warranty covers the first five years (or 100,000 km), but most aspects of a Honda warranty expire after just three. Also, according to one of my local insurance brokers, a Honda Civic is the most commonly stolen vehicle in Canada, so insurance premiums will reflect this.
Your primary reason for purchasing a vehicle is to get to and from work, and you have to keep a close eye on your finances. You want to minimize your monthly payments, and avoid unexpected costly repair bills. If you drive a new vehicle over a long term, the value gained from usage will balance out the depreciation loss, but of course you're still paying a higher overall cost.
So here's a middle-of-the-road solution: a Certified Pre-Owned (CPO) vehicle.
As I wrote in last week's column, with CPOs, you've got the assurance of a full manufacturer's warranty, and competitive finance rates on a vehicle in like-new condition. You'll pay a slight premium over used car prices, but a CPO will cost significantly less than a new vehicle. This way, you'll get the best of both worlds.
Joanne Will welcomes your questions. E-mail Ask Joanne at globedrive@globeandmail.com