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If you're in the market to buy a car, you likely fit into one of two categories of people: those looking to get reliable transportation at a good price, or those who think a brand-new vehicle is the most reliable choice, despite the fact it will lose a big chunk of its value as soon as it's driven off the lot.

So, should you buy new or used? Well, that depends. When it comes to buying a car, there’s really no one-size-fits-all answer – though it's best to ask yourself the following:

How much can I afford?

Used cars are definitely cheaper, generally because the original owner has already absorbed the largest depreciation hit. Cars lose value with each passing month and kilometre, but the steepest decline happens right away. The Canadian Black Book online evaluation tool shows that, depending on the model, a new car loses between 20% to 25% of its value the moment it rolls off the dealer's lot. Some models drop by as much as 40%. This is where you can save the most money by buying used. After that, the decline is less steep since the amount changes gradually as the car ages.

Verdict: Buying used is cheaper.

How much will I have to finance?

If your credit is good, you may find buying new with little or no down payment a bit easier than buying used. That's because most manufacturers offer rebates and financing incentives for new cars that simply aren't available in the used-car market. Financing a used car will almost always require money down, whether in cash or through a trade-in, and the interest rate will likely be higher.

Like financing, insurance rates will be also affected by the age of a car. In most cases, used vehicles tend to be less expensive when it comes to insurance coverage. However, before committing to a vehicle, you should always compare insurance quotes to find the cheapest rate for the coverage you desire. Rates can vary greatly from insurer to insurer. And like gas or maintenance, you will need to budget for insurance as long as you own and drive a vehicle.

Verdict: Buying new is better if you need to finance but don't have much to put down. But buying used will likely get you cheaper insurance rates.

How long do I intend on keeping the car?

If you intend to hold on to your vehicle for the long haul, you may prefer buying new. By owning a car from the outset, you can personally ensure it receives the care needed to reach its intended life span. You’ll also be familiar with the vehicle’s entire history, and thus avoid surprises. Some buyers steer clear of used cars because they’re worried about inheriting someone else’s problems. This is why the Insurance Bureau of Canada maintains a VIN Verify service that can help you check if a vehicle has ever been reported as flood-damaged or non-repairable. Vehicle history reports from internet-based tools like Carfax and Carproof can also reveal important details about a used car’s past.

Verdict: Buying new is better if you are concerned about inheriting the car's past problems.

What features are important to me?

The newer the car, the more up-to-date technology you’ll find inside. Advanced safety features and driver assistance tools have improved substantially in the last several years, and the selection will be much broader in the showroom. Fuel efficiency has also improved by far as newer models are introduced. So there’s a good chance that a new vehicle will deliver greater fuel savings as opposed to a similar, but older model. You also can’t build a used car to order, particularly if you’re looking for some specific customizable features – like heated seats, a sunroof, or an entertainment system.

Verdict: Buying new is better if you want optimal fuel efficiency and the latest technology. Buying used is better if you’re not too picky about the car’s features or having the most up-to-date tech.

How much am I prepared to spend on maintenance?

Going with a used car will likely mean higher maintenance and repair costs. Not only does a used car cost more to keep operating, but it will spend more time in the shop. While that may only be an occasional day or two, it can easily stretch to a week for major repairs. As technology has improved though, cars have certainly become more reliable. Most well-made vehicles don’t need significant work done until they’re well past the 100,000-kilometres mark. On the other hand, many new cars – particularly luxury brands – come with free scheduled maintenance for a certain amount of time or distance driven.

Verdict: Buying new is better if you don’t want spend as much on maintenance. However, you shouldn’t run into too many additional problems by going with a one-year or two-year-old vehicle with a clean history.

How long is the warranty?

A new car hasn’t been in any accidents, has no wear or tear, and comes with a pristine history that only includes being driven off the dealer’s lot. It also comes with a warranty.

If you buy gently-used, you may still inherit some portion of the new-car warranty, providing protection for a few months or even a couple of years. Off-lease vehicles, for instance, are usually only two- to four-years-old. And since they began life as lease vehicles with kilometre restrictions and maintenance requirements, these cars tend to hold up well and still have reasonable warranty life.

For a price, some dealers and manufacturers also offer certified used-vehicle programs that provide added warranty protection. Certified used cars have been refurbished to meet as-new standards and have passed a checklist of requirements that are the basis for certification. The price difference between new and certified pre-owned cars is much narrower, however.

Verdict: Buy new if you want a complete warranty, or gently-used if you want to save money on the car and are content with having a shorter warranty period.

Final verdict: Buy almost-new

Obviously, if you buy a new car, you’re steering clear of most maintenance problems, you’re getting the latest tech, and you can get the most out of your warranty period.

However, if you’re not pressed to get all the new bells and whistles, buying a year- or two-year-old car can save you thousands of dollars on the purchase price and insurance. These types of cars likely haven’t been through much and will have a few ten-thousands of kilometres on them. At the end of the day, you likely won’t be at much of a disadvantage in comparison to those with a vehicle fresh-from-the-factory.

Gordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a consulting firm focusing on retirement readiness. Gordon was a columnist for the Globe & Mail and Morningstar for many years and is also currently a columnist for Investment Executive, Canada’s national newspaper for financial advisors.

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