Automotive

When does buying a used car become cheaper than buying a new one?

  • Last Updated:
  • Feb 7th, 2020 4:50 pm
Sr. Member
Nov 26, 2013
512 posts
39 upvotes

When does buying a used car become cheaper than buying a new one?

My girlfriends car got written off and we are currently looking at replacements, we are mainly looking at Japanese branded cars like Mazda, Toyota and Honda. We priced out new cars at the dealerships and also looked at used cars at the dealer and online that are 1-5 years old. From what we found unless paying cash or you have an Home equity line of credit(HLOC) you can use which we don't, the used car loan will be close to 7% interest over 60 months. And let's say you finance a new Honda civic lx on 60 months, the current rate is 0.5% so the payment is is not that much more than the used car. Unless you can find a smoking deal on the used car which I noticed is hard to come by with the Japanese branded cars, I don't see why you would buy used if you finance through a traditional loan also not knowing the car's history unless you know the owner, am I missing something?
75 replies
Deal Addict
Jul 29, 2014
1506 posts
1107 upvotes
Toronto, ON
The answer to the question in the thread title is "pretty much everyday of the week unless you're looking at vintage collectables"

The answer to your problem in your post is to get in a position where you don't need dealer financing. One way to do that is to buy cars you can afford now.

You're falling into the trap of thinking that financing is unavoidable.

Maybe you should be looking at cars she can afford instead of cars she would like.

Check out this RFD thread: Who's driving +10 year old car?
https://forums.redflagdeals.com/viewtop ... &t=2338593
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GRAMMAR: The difference between "Feeling you're nuts." and "Feeling your nuts."
English is a difficult language. It can be understood through tough thorough thought though.
Deal Expert
User avatar
May 10, 2005
36997 posts
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Ottawa
Your girlfriend didn't win a lottery, she got in and accident and the car is written off.
The insurance company gives you what the car is worth and that is what you get to replace it. Buy something within that budget. If you want more, then you need to figure out how to pay the difference.
“Those people who think they know everything are a great annoyance to those of us who do.”
Deal Expert
Aug 22, 2011
41802 posts
30056 upvotes
Center of Universe
Honda and Toyota are bad examples, as they have high resale values.
You have to look at domestics as an example, as they will take a higher depreciation hit and can save you $10K+ compared to buying new.
Deal Expert
User avatar
Apr 21, 2004
58648 posts
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Pete_Coach wrote: Your girlfriend didn't win a lottery, she got in and accident and the car is written off.
The insurance company gives you what the car is worth and that is what you get to replace it. Buy something within that budget. If you want more, then you need to figure out how to pay the difference.
+1
The decision could change if the amount received from insurance co. is used to lower the used car financing too. Of course that's only if the write off value is significant enough.

OP, check that thread here on RFd about negotiating to get a higher write off value.
Deal Addict
Oct 23, 2017
2965 posts
2633 upvotes
GTA West
johnnyh55 wrote: My girlfriends car got written off and we are currently looking at replacements, we are mainly looking at Japanese branded cars like Mazda, Toyota and Honda. We priced out new cars at the dealerships and also looked at used cars at the dealer and online that are 1-5 years old. From what we found unless paying cash or you have an Home equity line of credit(HLOC) you can use which we don't, the used car loan will be close to 7% interest over 60 months. And let's say you finance a new Honda civic lx on 60 months, the current rate is 0.5% so the payment is is not that much more than the used car. Unless you can find a smoking deal on the used car which I noticed is hard to come by with the Japanese branded cars, I don't see why you would buy used if you finance through a traditional loan also not knowing the car's history unless you know the owner, am I missing something?
It is a good question. And when you buy used, you are also owning a vehicle with no warranty and you start to get repairs like brakes, suspension parts, and tire replacements. And by the time your loan is paid, you will be driving an 8 to 10 year old car, and may be looking for a new one. Then you may start paying for another high interest loan if you buy used again. You can buy a brand like Toyota to get long term reliability in a used car but then you are paying a premium price as you say.

With a new car you get a warranty and few repairs. If you are a low km driver, you may be able to drive your car during a 3-year lease without new tires (especially if you put miles on your winter tires) or brakes. But then you start all over again with another new car lease, looking for another promotional rate.

All things considered, it is cheaper to buy used and drive it into the ground, if you know how to maintain a car and deal with repair shops. But on an annual basis, I figure the annual all-in cost is only say, $2k higher for driving new every year. If you have a high disposable income, that is the way to go.

A hybrid approach is to lease at a low rate and buy the car at lease end if it proves to be reliable and meets your needs.

Edit: Let's think this through a little more: I am currently looking at a $40k car (CX-5) where the dealer calculates a depreciation of 43% after 3 years. But let's take 45% as more typical and consider 10 years of life to turn the car into a beater. The guy who leases it new and keeps it for 3 years has a depreciation cost of $6,000 per year. The guy who owns it from year 4 to 10 pays say $3,150 per year for depreciation, almost $3k better. But that is offset by repair costs. The first owner pays almost nothing in repairs, but the second owner probably pays a thousand a year for repairs and tires. Also, the interest cost could differ by say 4 - 5% for a person with a top credit rating between a new car lease and used vehicle purchase financing. That further erodes the overall cost difference.

Finally, the new car owner has a much nicer life - free shuttles from the dealer while doing warranty repairs and nice coffee in the showroom. The used car owner gets the incompetents at places like Canadian Tire or the commission-driven guys at the chains. Or you have to nurture a long-term relationship with good old Jim at that indie shop you finally found, where you can enjoy the back issues of Outdoor Life etc. But new car lease guy has predictable costs he can budget, while used car guy has big surprises from time to time. Of course, new car guy also gets the latest safety features while old car guy has things like recalls on those corroding Takata airbags.

It is no wonder leasing is so popular.
Last edited by Dealmaker1945 on Feb 7th, 2020 8:27 am, edited 4 times in total.
Deal Expert
Jun 30, 2006
21133 posts
9788 upvotes
Toronto
Not many people take a loan on a used car. They pay cash for it.
Deal Expert
User avatar
Apr 21, 2004
58648 posts
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carmaster wrote: Not many people take a loan on a used car. They pay cash for it.
Hopefully they are mostly open type loans which can accept prepayment. Then with extra cash flow, interest costs can be lowered with higher payments.
Sr. Member
Oct 2, 2017
850 posts
608 upvotes
OP the answer is you're right, they arent that much better.

I don't know why RFD always goes on a tangent and breaks out the financial whip when you asked a simple question
I'll see you at the top, cause the bottom is too crowded
Sr. Member
Oct 2, 2017
850 posts
608 upvotes
carmaster wrote: Not many people take a loan on a used car. They pay cash for it.
lol what. many people take a loan on a used car. That's why companies that sell cars exist
I'll see you at the top, cause the bottom is too crowded
Deal Addict
Jul 29, 2014
1506 posts
1107 upvotes
Toronto, ON
azmongold wrote: lol what. many people take a loan on a used car. That's why companies that sell cars exist
According to google, it ranged from 7% to 10% in the last several years (people that borrow to buy used car)
https://www.google.com/search?q=percent ... 8&oe=utf-8

I guess that means 90% to 93% didn't borrow money and paid with cash that they had saved.
-------------
GRAMMAR: The difference between "Feeling you're nuts." and "Feeling your nuts."
English is a difficult language. It can be understood through tough thorough thought though.
Deal Addict
Feb 19, 2017
3259 posts
3285 upvotes
Honestly get what you can afford OP. Financing is a crapshoot. I bought my last car using my HELOC (Prime+0%) and regretted not just buying something I could actually afford (had 10K in the bank). I paid it off (22K) in 2 years but really it was a vehicle I should not have bought and interest is just bs.

Don't get me wrong new cars are nice to have, but really you can buy a 1-2 year old car (or 3 off lease) and still get warranty and the new tech you want. Mine was an 1 year old executive driven Honda Accord with 30km and OTR was $10k less than brand new. Buy used if you can OP, always.
RFD is love. RFD is life. I wish I had an RFDer for a wife.
Sr. Member
Aug 27, 2004
768 posts
198 upvotes
Cyberspace
3 years ago, my son totaled off our Mazda 3. Insurance paid us more than the fair market value ($6k vs ~$5k).
We bought a used camry with less for $5k and pocketed the difference.
Aspiring Old Guy
Sr. Member
May 31, 2017
714 posts
1005 upvotes
If you have decent credit and the ability to handle the payment on a new car (from a creditworthiness standpoint) then the banks will give you a personal auto loan. You can probably get between 4.5% to 5% if you have decent credit. A lot of people ARE taking out loans for used cars, they just aren't using the dealership financing.

Also, there are a bunch of CPO programs that routinely have improved loan finance rates...but you might pay slightly more for the CPO car (and depending on the dealer CPO programs can be hit or miss...Volvo is, from what I've heard, among the best CPO programs as they offer significantly extended warranties and some better finance rates). Like anything with car dealerships you have to shop around a lot to find the right deal.
Deal Addict
Jul 29, 2014
1506 posts
1107 upvotes
Toronto, ON
OP hasn't provided any info about the written off car or the insurance settlement.

Basically he's saying that buying a new vehicle is same cost as buying 1-3 year old vehicle if you have no money and shit credit because of difference in borrowing rates. I suppose that could be true.

Most responses point out that buyer with no money and shit credit shouldn't be buying a new to 3 year old car in the first place. They're just setting themselves up for financial trouble.
-------------
GRAMMAR: The difference between "Feeling you're nuts." and "Feeling your nuts."
English is a difficult language. It can be understood through tough thorough thought though.
Deal Fanatic
Jul 26, 2007
7579 posts
5273 upvotes
Toronto
Everyone has different experience based on what they got previously. Others have more experience because they done all, used/new/lease/finance/cash/heloc. At the end of the day, it comes down to what you are comfortable with.

I don't like lease and I have done it all. I mainly stick with new cars with low finance. And I consider low when car interest rates are below mortgage rate.

Try everything, maybe your disposable income is high and you don't like fixing cars and maybe leasing is then best for you.
Deal Addict
User avatar
Dec 21, 2013
2161 posts
3198 upvotes
GTA
I've done the math extensively on new vs. used Civic, Corolla, Mazda 3.

Assuming you hold the car for 5 years:
Factoring in residual value after 5 years, cost of borrowing, higher maintenance on cars with approx 50K-60K kms etc., the absolute best value is a 4-5 year old car.

Otherwise buy new with a low rate.

The delta between new and 1-3 year used is not much when you factor in everything. It's worth it to just get new and have the benefit of the warranty etc. This calculation would be different if you were going in for a high end car as they depreciate very quickly from the get-go. I've done the calculation/spreadsheet a million times trying to make it worth it to buy a 2-3 year old car; in the end, it wasn't worth it.
Sr. Member
Nov 26, 2013
512 posts
39 upvotes
treasureseeker3 wrote: OP hasn't provided any info about the written off car or the insurance settlement.

Basically he's saying that buying a new vehicle is same cost as buying 1-3 year old vehicle if you have no money and shit credit because of difference in borrowing rates. I suppose that could be true.

Most responses point out that buyer with no money and shit credit shouldn't be buying a new to 3 year old car in the first place. They're just setting themselves up for financial trouble.
Insurance settlement was not much only $1 700, 2007 car with 284 000km, bought new back then, it would of serve me well if the other driver would of known to slow down for the road conditions and not run through his stop . I asked the dealer and they said shit credit or good credit interest rate for used car is 6-7% or more with really bad credit credit. I assume most people don't pay $23 000 - $28 000 cash for their cars so they must be financing. The cheapest way to borrow money would of been a home equity line of credit which we don't have at the moment. I didn't asked the bank for a loan as credit score is currently at 800 and I don't want it to take a hit unless I am 100% certain to buy shortly.
Deal Expert
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Apr 21, 2004
58648 posts
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johnnyh55 wrote: Insurance settlement was not much only $1 700, 2007 car with 284 000km, bought new back then, it would of serve me well if the other driver would of known to slow down for the road conditions and not run through his stop . I asked the dealer and they said shit credit or good credit interest rate for used car is 6-7% or more with really bad credit credit. I assume most people don't pay $23 000 - $28 000 cash for their cars so they must be financing. The cheapest way to borrow money would of been a home equity line of credit which we don't have at the moment. I didn't asked the bank for a loan as credit score is currently at 800 and I don't want it to take a hit unless I am 100% certain to buy shortly.
First step is to demand more money if possible.
https://forums.redflagdeals.com/non-fau ... ey-430232/

You are right in that 6% is probably the lowest you can get for a used car financing. If it's an open loan (accepts prepayment) and you both will have more liquidity down the road, then that loan isn't really going to cost you 6%.

Probably best to look for real friends selling or giving away their cars. At least you know what you are getting into but probably still need to have a mechanic check it out.

Minimum spec for a used car would be defeatable (this is RFD after all) electronic stability control.
Sr. Member
User avatar
Apr 4, 2005
966 posts
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Markham
Hey op I was in the exact same situation as you are in.

I decided to go brand new as finance rate is 1.09% (5 years) for a brand new corolla.

I intended on buying a used vehicle but with the expenses I had coming up (getting married this yr) i was better off buying brand new.

Total cost to borrow was around 6xx.xx for 5 years which wasnt bad at all.

Hope this helps your decision.
Aware

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