Buying A Used Car

There are two clear ways to go about solving the car ownership format question.  New or used.  Each has its own cost structure.  Consider the total cost of ownership either by year or by the mile.

Total cost of ownership includes the capital consumed in ownership of the vehicle, (lease or depreciation) plus the costs to operate it, (Fuel, maintenance and repairs, insurance licensing) and possibly disposal costs of the car or its components.  Bear in mind that you want certain comfort, convenience and safety from the vehicle and will not compromise much on those. The objective is to have the total expense over the time you own an acceptable vehicle be as small as possible.

The question of new versus used is an interesting one.  Would a 3-year old Lexus cost less to own over the next three years than would a similar new one over the same three years.  The question becomes would maintenance, repairs, other costs and possibly inconvenience, be more than the depreciation advantage?

The answer is unqualified.  “Maybe!”

History has taught us that the used car would typically cost less.  You might give up a little to differences in technology or style.  These could affect fuel consumption, perhaps insurance and possibly safety.

If you buy the car to impress the people inside it, you will likely save money with the used one.

I have recently heard that the cheapest way to drive follows this rule.  Never buy a new car and never sell a used one.  I would likely disagree with the never sell a used one part, because vehicles become obsolete before they are ready for the wrecker and you may want access to newer technology or reliability.  Nonetheless as an absolute rule, it is a place to start thinking.

Once you decide a used vehicle is okay to own you need to find one.  You can approach dealers for vehicles coming off lease or those traded in.  Kijiji, CraigsList and the Autotrader site may be fruitful too.  Be cautious of the classified sites.  Never send money before you have checked the vehicle

Unless you are in a hurry you will likely find something.  If you have 90 days or so to look, there is little doubt you will find something that suits you.

If there is warranty left, you might wish to have the dealership check the car thoroughly.  Be conscious of hidden warranty items.

If you buy privately, then you need to be a little careful.  There are at least four things you should care about:

  1. Does the person selling the car actually own it?  In Ontario, you can acquire, for $20, a used vehicle information package.  (UVIP) It will show the current owner according to the ministry’s records.
  2. Are there any liens on the vehicle?  Again the UVIP will show any that are registered
  3. Is the vehicle mechanically good?  The province requires a safety check which will identify most of the obvious problems.  You will need that to transfer title but, while he is at it, it will be wise to have a mechanic also discover other little defects that do not make it fail the test but will need attention soon.  Tires for example.  You can address those as part of the cost of purchase and do them over the short run.  Again if there is warranty left, have it checked out.
  4. Has the vehicle been in an accident, been flood damaged or branded as unrepairable?  A mechanic can tell if there has been accident damage and there is a limited data base of flood damaged and unrepairable vehicles at The insurance Bureau of Canada.  You can check a VIN here.

Vehicle ownership is a big cost for most families.  Be sure you know what you are giving up in order to drive a flashy new vehicle.  You cannot spend extra money on a car and have it available for something else.  Money you save by reducing the total cost of ownership can be saved or provide for other lifestyle enhancements.  Would you prefer the new car to the 3-year-old one if you had to specifically reduce your vacation budget by the extra amount you pay for the new one?

If the new car scent is what matters, you can buy that in a can.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

don@moneyfyi.com  |  Twitter @DonShaughnessy  |  Follow by email at moneyFYI

3 Comments on “Buying A Used Car

  1. Since the advent of the Great American Street Car Conspiracy, the automobile has become one of the favourite “vehicles” for wealth transfer from the populace to the government and industrial status quo.
    When we consider the resources wasted in
    1. repetitive manufacture of planned obsolescence and poorly designed vehicles
    2. forced use of vehicles where public transportation would be judicious
    3. Taxes on vehicles, gasoline, and consumables
    4. Loss of production from masses of citizens killed or maimed in wars to acquire automobile-related resources
    5. Added expense of truck truck-based national freight system vs. rail
    5. Cleanup of pollution and medical bills from all of the above
    How much ignorance could have been resolved, how many diseases could have been cured, how many loads could have been lifted, had the resources inordinately used by the contrived elevation of the automobile, been directed to other areas of our lives.

    • I assume that means you ride a bike and donate all the money you save by not owning a car to a cancer research (or similar) foundation… 😉

  2. I generally agree with the concept of buying a used car. I have purchased one new vehicle though, and I am currently on my 10th year with it. It has been extremely reliable and cost me nothing more than scheduled maintenance, so I think in the long run I’ve done pretty well with it.

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