Reasons to buy a used car instead of a new car
If you’ve been reading my site for any length of time you’ll know I’ve proudly owned this 16 17-year-old car.
I bought this 2000 Mazda Protégé days after I moved to Ottawa from Toronto. The car was brand new and it cost about $16,000 at the time. I drove the car off the lot the day I bought it. It has been bought and paid for since 2005.
Recently this beauty gave me trouble. After driving over a speed bump (maybe too quickly?) on the road to my golf course, I broke part of the axle and other joints associated with my right rear tire. The right rear tire almost fell off. I wasn’t going very fast actually but I guess the corrosion that built up within the car over the years finally gave way after one big bounce. My mechanic informed me the cost of replacing everything and making the Protégé roadworthy again would be < $700. However this car is only worth about $1,000, maybe.
Would it make sense to fix it and keep it?
I had a decision to make:
- Option 1 – fix the car and try and keep it for at least the winter. Decide on something in the spring of 2018.
- Option 2 – forget the beloved car and go newer. Decide on something used soon.
- Option 3 – forget the beloved car and go new. As above, make a decision soon to replace this secondary car.
After thinking it through we landed on Option 2.
My wife and I have been planning for this day for a few years now – we’ve been saving up for a new(er) car for the last year or so – that was one of our 2017 financial goals. In addition to that we have an emergency fund. We have such a fund for the “what ifs” in life. A destroyed right rear tire where I can’t drive the car more than 20 km/h was deemed somewhat of an emergency.
Besides having enough money to pay for the newer car in cash here are the other reasons we decided to buy a used car instead of a new one.
- Minimized depreciation value
New cars, driven off the lot, can depreciate by as much as 20% in value. To put that in perspective that means on a $25,000 new car purchase that’s like taking $5,000 out of your bank account and burning it in a summer camp fire. I don’t think so.
- Lower insurance rates
It would be hard to beat the rock bottom, no collision insurance rate I had with the 2000 Mazda Protégé but with some research I confirmed a 2-3 year old car is a nice “sweet spot” for lower insurance rates over new cars.
- Lower price with major choices
Until you go used car shopping I suspect you have no idea how much choice there is for your price point. There are literally hundreds of used cars within a short drive of my place; cars from large-volume dealers to auctioneers and small entrepreneurs. Although no used car can be made to order there is certainly a bounty of choice in the used car market.
- Increased safety and keep the warranty
The safety ratings on most cars have increased dramatically since I purchased my car 17 years ago. Beyond that, you’ll find many used 2-3 year old cars have a good portion of their bumper-to-bumper and/or powertrain warranty intact.
We also decided to go newer with a particular car for these reasons. Your mileage might vary. I will reveal the car below…
Why go with this used car?
- Based on reports/claims this car has a good safety record.
- Based on various reports most consumers seemed happy with this car.
- Based on the specifications reviewed this car gets great mileage over its competition.
- Based on various reviews the replacement parts for this car are easy to find and do not cost too much money.
- Servicing and maintenance for this car is routine for my mechanic; he recommended this car along with a new other makes and models in this year.
- We rarely use a second car – so although this will likely become our primary vehicle I didn’t want to spend lots of money on any car that could sit in the garage most of the time.
- I wanted to avoid financing to the extent possible. Financing cars is generally a wealth-destroying activity.
After thinking it through – we decided on this – a 2014 Mazda 3 GS.
We purchased the car with around 50,000 km on it and a clean CarProof bill of health with only one previous owner. It has some nice creature features like a sunroof. Although I had little price negotiation room on this car (I certainly tried!) I did manage to get winter tires on rims with it, new summer tires put on the existing alloy rims, and new front and back WeatherTec mats installed. What is old is newer again – one Mazda for another.
I was inclined to keep my old car until I drove it into the ground. Mission accomplished I guess – the ground/speed bump won a couple of weeks ago.
Keeping my old ride for many years had a number of benefits. I hope the same can be said in another 10 years with this newer car.
What do you make of my used car purchase reasoning? What would you have done?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Another good post for old car lovers. Well explaind there are so many other reasons to buy used one instead of new one. 2 to 3 year old car will defiantly save a lot as explained. Thank you for sharing 🙂
No problem – thanks for reading! I can’t see myself buying a brand new car ever again.
the fun times – finally giving in on the corolla 2000 with 280K on it… treated me very well this car…
now – i am a corolla/toyota fan – i have enough to almost buy a new car completely – the whole Lease for 39months, zero interest and then intend to pay off the residual has me intrigued – but then again, like to know i own it outright and pay a substantial deposit and finance for 3yrs most – your thoughts Mark on lease vs finance – cheers – Johno
Good to hear from you John!
Here’s my take on the car lease thing:
1) you don’t own anything, no equity, you are renting a depreciating asset. It’s like renting a hot water tank or furnace or air conditioner. Just seems odd.
2) you have mileage restrictions
3) it’s like a rental contract with the dealer, they hold all the cards. Not ideal.
4) liability for payments, should you lose your job…if dealer sells it for less than you owe for the lease agreement, you will be legally responsible to pay the difference. not fun.
5) you’re still responsible for the repairs even if you don’t own it. Odd right? Don’t put that off.
https://www.thestar.com/autos/2016/08/13/dont-neglect-maintenance-on-a-leased-vehicle.html
https://www.theglobeandmail.com/globe-drive/culture/commuting/dont-get-dinged-at-the-end-of-your-lease/article4217122/
I just think owning a car outright is a lot less problematic. We do this. We own both of our cars.
Wealthy people pour money into appreciating assets. Not depreciating assets. Just me!
Cheers.
Just quoted $1900 for a heating/cooling issue with my 2007 Hyundai Tuscon. With only 170,000km left on it and the body in good shape we may be able to get another 5 years out of it. My concern is if we pay the $1900 to fix it and then have another major fix (fixes) in the next year it may not be worth it. Have been looking at something 3-5 years old with 75,000 or less on it. My overall preference when it comes to cars, is spend the least amount of money possible. Bells, whistles and new car smells are overated in my opinion
“My overall preference when it comes to cars, is spend the least amount of money possible.”
I agree to a point mat. You need a decent car that reduces maintenance though. So far, so good with the Mazda. That’s my sweet spot as well = 3-5 years old with less than 50,000 km. That’s what I bought this year.
Mark – didn’t your mechanic spot the corrosion during regular maint?
Umm, rear tires don’t have tie rods….that’s the steering component for front tires…twice the danger when they fall apart
They did and warned me about it but again, the car was 17 years old. It had a great run.
My guess was the axle or something because it basically snapped, sorry, you’re right – no tie rod. I updated my post!
My 2016 toyota corrolla is still kicking – at 270,000kms – i just can’t let er go until i really have to – like Mark, the body is fine and until i have a major expense, well over $500, i will drive it till it dies.. and when ready – will buy a max 3yr old used car – no sense in buying new and the depreciation kills the value in less than no time.. John
Thanks for the update John and smart: “no sense in buying new and the depreciation kills the value in less than no time.”
sorry – my corolla is a 2000 and not 2016 – typo.. purchased May 2000 – cheers
All good John, I assumed that’s what you meant.
Good analysis BartBandy. I’ve utilized that kind of analysis on our used cars.
Mark, on the Krown be very clear with them not to overspray on the door or trunk rubber gaskets. If they do make sure they are completely wiped clean promptly. Otherwise they will definitely lose shape (may droop and be visible outside the car) and may not seal effectively. My father had recent bad experience with this on his new car. Fortunately newer Mazdas do not have the rust issues they did on some in the 90’s and into the 2000’s, although my ’93 MX6 did not have a spec of rust (never winter driven) when I sold it in 2005. The only “repair” done.. was brake pads were changed – under warranty. Best car by far I’ve ever owned (should have kept it) and I’ve had 22, plus 11 motorcycles/ATVs/snowmobiles.
Our Mazda 3 is 8 years, 3 months old and 97K We have had to get the air conditioning charged twice (apparently there was a not well known repair bulletin we missed), and changed 1 pollution sensor, I replaced all rotors/brake pads & flushed fluid (sea air wreaks havoc on all parts metal here), the battery(preventative), air filter = total repairs ~$1000, plus about 24 oil changes @ ~$20 each which I also do myself. We bought winter rims/tires used and replacement set of tires (near new) all from kijiji, as I did for my Hyundai. Got a great deal from the President of Michelin Canada on these brand new coming off his new 2016 Subaru Outback, since he had to immediately get Michelins on the car! True story. On the 3 we are due to have trans fluid flushed and coolant flushed in another year or so. There were also a couple of minor recalls Mazda did. Car has basically been bullet proof so far. Give the Mazda dealer your vehicle VIN and check if there is any outstanding recalls or bulletins you should be able to get them done gratis. Good luck.
Thank you RBull and Mark!
I was taught those rules of thumb by my dad. He would actually go a further step which was to divide the unused lifetime mileage by the purchase price to calculate a “cost per KM” that we were buying. It’s a good way to compare whether a lower mileage car at a higher price was a better deal than a higher mileage car at a lower price. Of course you need to take into account the model year, trim level and condition of the car. I’ve always preferred the 3-4 year mark even if it is a few more cents per KM because I want to enjoy it while it is fairly new and have a long horizon (6-10 years) before I have to repeat the process (car shopping isn’t always fun).
I agree with your points about the overspray and dripping – when we had ours done, it was dripping on the driveway for a few days. Next time I will do it on a Friday and leave it at their shop over the weekend or something.
I’m in the GTA and strongly recommend snow tires on steel rims. Night and day difference in safety (braking and turning as well as accelerating), and since they are on their own rims you can pop them on and off in the Spring/Fall in your driveway. Yes, there’s an upfront cost to buying them, but since you can only run one set of tires at a time, the life of both is extended.
Thanks Bart.
I’ve learned the 2-4 year old car window is ideal. I probably wouldn’t have liked a 2015 or 2016 actually but I only had some much money and other cars didn’t have the features this one had. Hopefully we can keep this car until semi-retirement (another 5-10 years).
I think I’ll appreciate the steel rims and winter tires in a few months. I think that was a good deal in getting those in the offer.
Very smart decision and reasoning process and very similar to my own.
With a 2014 heading into the 2018 model year, you are hitting the used car sweet spot. At 4 years, a car has lost about 50% of its initial value (Canadian Black Book tracks residual values, and the 4-year mark is a common rule of thumb). However, at 4-years, a car has lost nowhere near half of its usable life. It is expected that a car can last about 300,000kms these days, and that the average Canadian drives 20,000kms/year (the actual average is 15-20k, but CAA and others use 20k as the yardstick). At 4 years, a car should have 60-80k on the clock, which is just 20%-27% of its life used.
You got an even better deal at 50k (17% of life used) – you bought 83% of a vehicle’s capacity for 50% of its original cost if you paid the average. You may not keep it for the full 300k, but you should have some equity in the end that makes it worth something if it certifiable and well maintained (consider Krown or Rust Check and wash regularly in the winter – Mazdas seem susceptible to rust).
Calculations will vary by brand and segment – Hondas, Toyotas, and Subarus hold their value well, as do crossovers and luxury cars, so it is harder to get a great deal on those compared to domestics and smaller sedans/hatches which depreciate much faster. I used to say the Pontiac Vibe (twin of Toyota Matrix) was a fantastic used car – Japanese quality with domestic depreciation!
Good way of looking at that actually…at 3-4 years old the car lost 50% of its initial value but nowhere near its usable life (>80% left). This is why buying used within the range of 2-4 years, I think, is the best way to go. I certainly didn’t always think this way…
I figured 50 k on the car was a good deal actually…doing the same math Bart – about 20,000 km/year is average.
I am going to get both cars done this year – Krown. I figure they will give me a deal if I do both (the newer Mazda 2014 and our 2012 KIA).
Thanks for your comment.
Huge exercise in discipline and adherence to your overall plan. Admirable. Not sure I could do the same. There is so much choice but as usual, you compartmentalized your thought process in such a way as to give me good food for thought. I find myself in a position where we are in need of a new(er) vehicle by September. This article was very timely for us. Thanks again Mark!
Happy to help Lee, if only to provide some insight into my thinking. Cheers!
Your car! One of many high rated tests.
http://www.autotrader.ca/expert/20131129/mega-comparison-test-2013-2014-compact-cars/
Yup. Looked at many, many articles like that over the last few weeks to help make this decision.
I was in the same place late last year. My 2003 PT Cruiser had the famous leaky rims so I topped up the tires every morning. But a year ago it started stalling on me from time to time, started off once every couple of months, then increased to about 2 or 3 times a month by December. Fortunately it always started again, but it freaked me out when it happened. Mechanic found the computer to be faulty with electric shorting out occasionally. The computer was not the original, had already been replaced once, and mechanic was hoping to find me a used one to cut my costs. We were hoping with the harsh winter a Cruiser would get in a crash, but didn’t happen. I finally had enough and just before Christmas bought a 2012 Mazda 3. Mine is also black. That sucker shows its dirty really fast. This particular car wasn’t on my radar but I’m happy with it and my mechanic said it was a good choice. It’s fully loaded with more bells and whistles that I’ll ever need (including that sunroof!). I must say that now I’ve owned a car with heated seats I’ll probably always be looking for that feature in future cars! 2012 was the oldest year I was looking at. And yes, paid cash out of my emergency fund. Hated doing that. But I would also hate being stalled out and unable to pull safely off the road due to snow. Safety was my big concern.
I didn’t like tapping into a bit of our emergency fund either Cheryl but it was necessary. The best part I guess, our emergency fund will be topped up again to where it should be in a few short months and we can start saving for the 2018 TFSA contribution room – and not have to worry about car payments for many years to come 🙂 Thanks for sharing.
Very, very smart decision since your old Mazda was at the point where repairs no longer made sense. I really like how your thinking evolved on this from more of a new car ideology to “newer used”. Also your choice of a used vehicle and this particular model is excellent. A top rated small car that was updated for 2014, with the mid level trim (GS). You’ll get many years of trouble free driving. Since it has the moonroof it also likely has the convenience package-heated seats/mirrors, leather wrapped steering wheel, rain sensing wipers etc. Included winter tires/rims- great.
My wife drives a 2010 Mazda 3 GS Sport, with convenience package but has the larger 2.5 engine it came with that year and we have the extra wheels/tires too. Buy yourself a cheap (but safe) hydraulic jack (if you don;t have now) and change them over yourself. Your car has the skyactive engine which is much more fuel efficient and nearly as powerful as my wife’s car.
Nice job Mark!
Yeah, the repairs made no sense at >$500+ Might as well own a newer car, hence our decision. It is my hope our research will prove us right and other than brakes and oil changes and other general maintenance items we should be largely trouble-free with this car. It has heated seats/mirrors, leather wrapped steering wheel, rain sensing wipers, etc. Very good features I thought. The SkyActive technology makes it very fuel efficient for the city. I’m getting 6L/100km right now which I am happy about.
Used is definitely the way to go. On top of the financial benefits I find I worry a bit less about a used car. The odd dent or scratch isn’t so bad when the car is a few years old (it probably already has a few anyway).
We just ‘upgraded’ our 7 year old manual Honda Fit for a 2 year old automatic. We would have kept the old one longer but with our two kids my wife is driving more and automatic is easier. Since we only have one car it has to work for the both of us.
Cheers Owen. Sounds like you made a good decision as well. Those Fits are good lil’ cars.
We also have a 2014 Mazda 3. Love this car! Ours is a stick shift and has twice the km on it as yours, though (that was our doing). Can even fit three kids across that back seat! I love small cars. Good job getting the winter tires/rims to come with it. Enjoy it… it probably feels quite different from your old one!
Thanks Lee! I was disappointed about the price but I worked hard to get the tires and WeatherTec mats included. Those mats alone are worth about $400.
Nice car. I plan on getting my next used car in a few months. I’m currently researching and saving up for it.
Thanks Jason. What are you looking at?
My first car was a 1988 Toyota Corolla. It was a gift from an acquaintance after I graduated from university. I spent about $1700 to certify it and was able to get four great years of care-free and fun time when owning it.
The insurance premium was cheap, I didn’t cared when people scratched my car. I can Park on the streets in Toronto without having to worry about vandalism. All these feelings were gone after I got a new 2006 Mazda 3. I still drive it today.
2006 Mazda 3? Good work. Thanks for the comment. Nice to see you finally pass the spam! 🙂
Congrats on the new car! Nice ride 🙂 My husband and I recently got a Mazda CX-5 (zoom zoom) used. We financed a portion of it because it was 0.9% financing for 2 years. That’s great you were able to get winter tires. What did you end up doing with the older car? Did you sell it by yourself or sell it to the dealer?
CX-5s are nice as well. The older car was basically worth parts but I got a bit of money for it from the dealer.
How much did you pay for 2014 Mazda 3 GS?
I prefer not to disclose but I felt it was competitive.
I would not have paid cash for the car. If you had a small company – you could write off a lease payment. Even buying a used car, you might have been better using your cheap LOC? or some dealers have zero interest rates on both new and used cars. By paying cash, you took money away that could be used to purchase assets that make you money. Like Dividends. Sometimes its good to leverage other peoples money.
That’s fine Mike. Using an LOC however means I’m borrowing money, paying interest on that debt, to purchase a depreciating asset. FWIW, our TFSAs are maxed out and so is in RRSP. So unless if you are suggesting I invest in a non-reg. account (taxable) while I’m adding to my debt load is a good idea then I’ll disagree with you.