Loans for New vs Used Cars: What’s the Difference?

By John Hayden

Whether splashing out on a brand-new automobile or opting for pre-loved wheels, the chances are high that most Canadians will be on the lookout for auto financing. That’s why it’s important to know the benefits of loans for new vs used cars, because decisions taken today have financial repercussions for years to come.

For many people, buying a car – whether new or second-hand – is the second largest transaction in their lifetimes. It ranks high, just after purchasing a home. Naturally, Hayden Agencies does everything possible to help its customers find the best deal for their budgets in Atlantic Canada. They can decide exactly how much auto financing they can afford through this easy-to-use car loan calculator.

Benefits of Buying New

There are many advantages to buying a brand-new car – apart from that unmistakable new car smell, of course! Here are a few of them:

  • Lower interest rates, provided your income is sufficiently high and your credit rating is acceptable, when interest rates may drop to an irresistible 0%.
  • All the latest bells and whistles are already built in, from advanced driver-assist systems to in-cabin infotainment, with once-luxurious add-ins becoming standard;
  • A full warranty, with coverage starting on the delivery date, which is 60,000 km or three years of comprehensive warranty, and 100,000 km or five years for the powertrain;
  • Its maintenance history is zero, with no skipped routine maintenance, neglected issues, or delayed repairs;
  • As the first owner, you can be confident that nobody has pushed the car beyond its capacities, with invisible damage that might appear only months later.

Benefits of Buying Used

  • Lower prices, even for vehicles that are only a year old. This is because the original owner absorbs at least the 20% loss in value the minute a car drives off the lot;
  • Slower depreciation, as cars may depreciate by as much as 10% a year. In other words, four years after buying a new car, its market value is probably only 50% of its original ticket price, and with rising maintenance and repair costs;
  • Warranties that are still valid, particularly for vehicles less than three years old.   With luck, many still offer full coverage, while slightly older models could still be protected by a powertrain warranty;
  • Recalls and other major design issues are likely to crop up during the first year, so used-car buyers avoid these additional visits to dealership service departments;
  • Better value for money, as many used vehicles are well-equipped, offering a higher trim than a new model.

Upsides of Loans for New vs Used Cars  

  • You can finally afford your very own wheels, without dipping dangerously deep into savings. Better still, you can choose how much you want to repay each month by deciding on the length of your loan. This means you won’t have to slash other expenditures.
  • Auto financing can improve (or even rebuild) your credit score, provided that you make all your payments promptly. In fact, consistent payments account for up to 35% of your credit score, based largely on your payment history and amounts owed.
  • Best of all, your car becomes a fully owned personal asset once you’ve paid off your loan. This frees up the amount paid out each month as instalments, which means it’s time for another decision.
  • Now you get to choose whether to trade your vehicle in for a newer or bigger model (and probably take out another loanAnother option is to sell it,  downsizing to something smaller (freeing up cash for other purposes). The third possibility is you simply keep driving it until it’s not worth repairing any more.  And with some models, this could be twenty years or more, with good luck and careful maintenance.

Overview of Loans for New vs Used Cars

At Hayden Agencies, financial advisors are happy to provide in-depth analyses of the best financing options for new and used cars, tailored to other individual needs and budgets.

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