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- What you need from your car
- Setting a budget
- Start your search
- History of the car
- Pay for car purchase
- Car insurance
- Dealership vs. private seller
- How to inspect a car
- How to take a test drive
How to buy a used car
So, you’ve decided to buy a car. Here’s the first question: new or used? In general terms, the choice is straightforward. A new car comes with the latest features, warranties and the promise of a few years of driving free from all but routine maintenance. The benefit of buying used? If you choose well, you’ll save a bundle.
It hasn’t been so simple in pandemic times. The pandemic led to inventory shortages and soaring vehicle prices as people who would normally buy only new cars flooded onto the pre-owned lots. But pandemic challenges aside, the basic principle of buying used remains: Find the right vehicle at the right price and you’ll get good value. Here’s how.
What do you really need from a car?
When you set out to buy a vehicle – new or used – your top goal should be to get the greatest value from your purchase. To do that, evaluate your needs and how they’re met by various makes and models. Think about how you’ll use the vehicle, how often and how far you’ll drive and how much space you need for passengers or cargo.
When shopping used, it’s also a good idea to consider the age of the car and how long you plan to drive it. This is about more than future maintenance costs. A used car doesn’t depreciate as quickly as a new car. So, you have an opportunity to retain more of the value.
According to Edmunds.com, an online car shopping and review site, you’re in the sweet spot if you can buy a used vehicle that’s one year old and sell it in its fourth year. Other experts, such as Winnipeg used car dealers Andrew and Doug MacIver – hosts of the former BNN show Bargain Brothers – say owning a car between the ages of two years and five years also delivers good value.
What about your budget?
Your budget will be the most important factor in deciding which car you finally buy. You may be hoping for a mid-size SUV. “But if you have a smaller budget, say around $15,000 or $20,000, that’s going to get you a small compact car or a hatchback,” says Shari Prymak, a senior consultant with Car Help Canada, a non-profit organization that helps drivers find cars and negotiate purchase agreements. “Really, it’s about budget more than anything else,” he says.
But developing a budget is not only about your final purchase price or monthly payments. Mr. Prymak Prymak advises you also consider continuing costs. In addition to monthly payments, you’ll have expenses for insurance premiums, gasoline, and sooner or later, maintenance and repair bills. You’ll want to consider all of these in calculating the overall affordability of your purchase.
A common rule of thumb says you should keep your monthly costs of owning and operating a vehicle to between 10 per cent and 15 per cent of your income, though that will depend on your other debts and obligations, such as mortgage payments, rent or student loans.
How to start your search for a car
Information about used cars and tips for buying them are abundant online. Pricing details are widely available, from the websites of bricks-and-mortar dealerships to online marketplaces such as Autotrader.ca, Canadadrives.ca and Clutch.ca.
You can also find research reports on price trends across vehicle categories. But with so much information readily available, don’t expect a lot of negotiating room if you plan to buy from a dealer. They already know what the competition is charging.
In addition to price information, the online world offers rich veins of data on important issues such as reliability, fuel economy and other important factors in deciding what kind of car you want to buy and how much you can afford. Good starting points include Kelly’s Blue Book Canada, Consumer Reports and J.D. Power. Natural Resources Canada also publishes a fuel economy database on its website.
Find out the history of the car that’s caught your eye
When you’ve narrowed your search to an individual vehicle or a small selection, be sure to get a vehicle history report from an organization like Carfax Canada or VinAudit Canada. These reports cost roughly $20 to $50 apiece, though providers offer discounts if you want more than one. They’ll use the car’s vehicle identification number – or VIN – to excavate details about the car’s ownership history, its maintenance records, involvement in reported accidents, open recalls and more.
Note that a reputable used car dealer will normally provide a vehicle history report with its sales package.
How to pay for your car purchase
Used car prices soared as the pandemic settled into its second year. According to Canadian Black Book, a data firm that tracks the used-car market, the average price of a used vehicle crested above $37,000 in September of 2022 – an increase of 54 per cent from $24,000 in March, 2021. A surge in overall inflation and rising interest rates made affordability that much more challenging.
Those circumstances may have tempered by the time you read this article, but there’s a good chance you’ll still need to finance your used-car purchase.
Generally, you’ll find the best interest rates at a dealership. “Dealers have access to basically every bank that a consumer could be banking with,” says Shawn Vording, vice-president of product and sales at Carfax Canada. “A lot of the time, they’ll shop your deal to the banks and come up with the bank that offers the best rate.”
Mr. Vording also notes that your regular bank may offer perks to get your car loan, such as a gift card for gasoline. Ask your dealer if they can get a good loan rate from your bank, and you may get the incentives, too.
Seven-year loans and $781 payments: The personal finance of car buying has crossed the line
If you’re buying a used car privately, however, you may have to come up with your own financing arrangements. Mr. Prymak cautions that banks and credit unions can be reluctant to issue loans on aging cars. “They know it can be problematic … Over seven or eight years old, most cars can’t be financed. You have to pay cash.”
As a final alternative, you could lend money to yourself, say, with a line of credit. But if you go this route, you must have the financial discipline to pay yourself back on schedule. Any cheating will only add to your overall debt.
When will you need car insurance?
When you’ve narrowed your search for a used car to a small selection of makes, models and years, it’s a good idea to call around to insurance companies and get an idea of how much your premiums will cost and what you’ll get for them.
When you’re ready to buy a specific vehicle, you’ll need insurance before you can drive away. You cannot drive in Canada without car insurance, and dealers won’t let you off the lot without it. You’ll also need insurance to register your car.
The cost of coverage will vary depending on your driving record, the type of car you buy and how much additional coverage you want beyond mandatory minimuMr. Prymak Mandatory minimums vary by province and territory. You can find details for each jurisdiction at the Insurance Bureau of Canada website, as well as useful consumer tips about buying insurance.
Should you buy from a dealership or a private seller?
The choice between buying from a dealer versus a private sale comes down to certainty versus price. Used car dealers operate in a regulated industry, so you’ve got recourse if something goes wrong with your deal, Carfax’s Mr. Vording says.
You’ll also receive a vehicle history report during the sales process. And if you buy a certified pre-owned vehicle, you’ll know that car has been inspected and reconditioned by either the dealer or the manufacturer. At minimum, the car will have been inspected by a mechanic, unless it is being sold as-is.
That’s all great, but there’s one big upside in a private sale: You’ll have a better chance to negotiate, and you will probably get a better price – if you do your homework and pick the right car. More on that coming up.
Private sales: How to inspect a car
So, you’ve evaluated your needs and budget. You’ve also spotted a private used-car listing on Kijiji that looks like a pretty good deal. You call the seller and make an appointment to look at the car. Now what?
There’s plenty of good advice online on how to inspect a used car so read up before you meet your seller. (Again, ConsumerReports.com and AutoTrader.ca are well-known starting points, but far from your only sources.)
When you dig in, you’ll find there’s a lot of ground to cover, from inspecting the exterior of the car for signs of damage or shoddy repairs to the body or glass to sniffing the interiors for hints of damp or rust and testing all the warning lights to make sure they work.
Most important, though, is to have the vehicle inspected by a reputable mechanic. Before you make an offer, you need to know about the car’s overall condition, whether there have been repairs not disclosed by the seller, and whether there are any parts that will soon need maintenance or repair.
“Taking the car to a mechanic … is one of the most important steps in buying a used car,” Mr. Prymak Prymak says. If the seller refuses, just walk away. Also, be sure to get a vehicle-history report. It’s money well spent.
How to take a test drive
The key to a successful test drive is to drive as you normally would. If you’ll be using the car on city streets, look for stop-and-start traffic. If you expect to drive in hilly areas, check it out on inclines. No matter where you’re driving, pay attention to the overall handling and engine sounds.
Find some highway, too, and see how the car responds at faster speeds and the smoothness of acceleration when merging into traffic. Throughout the process, stay focused on the vehicle. Don’t let the seller distract you with questions or conversation.
The bottom line: Final tips for buying a car
Buying a car – new or used – is one of life’s major expenditures. For many, it will be second only to buying a home. So, it’s important to keep a cool head.
It’s crucial to keep an eye on the total cost of ownership, not just the monthly payment. During the COVID-19 pandemic, the most common term for a used car loan soared to 84 months, much longer than the traditional 48 months. Thus, buyers will be making monthly payments well into the timeframe when they should expect the budget for maintenance and repairs to be climbing.
Keep all of those costs in mind and stay focused on the goal, which is to get the most value from the deal you ultimately make. Above all, do your homework and stay rational.
“I’m a car lover … and I’ve definitely made emotional decisions,” Carfax’s Mr. Vording says. “Doing as much legwork online is a great starting point to not build that pure emotional attachment to sheet metal. The other piece is, take time to breathe. Learn something, digest it and don’t rush to a decision.”