Buying A Used Car In Ontario – The Complete Insider Guide
This is the definitive guide on how to get the best deal on a used car in Ontario.
This article is the culmination and summary of everything you need to know about buying a used car in Canada. To keep the length manageable, certain topics will be covered in detail on other articles on this site. We will link to these articles throughout the article to give you contextual understanding of what you need to know to get the best possible deal for your money.
When you have finished reading this article you will be armed with the information you need to be set yourself up for success for yourself in the used car market.
Table of Contents
- 1 – Ways To Buy Used Cars
- 1.1 Private Sale
- 1.2 Used Car Dealership
- 1.3 Lease Buyout
- 1.4 Public and Private Car Auction
- 1.5 Repossessed and Government Vehicles
- 2 – Choosing The Best Used Car
- 2.1 Buying Preferences
- 2.2 Financial Impact
- 2.2.1 Depreciation and Resale
- 2.2.2 Fuel Economy
- 2.2.3 Insurance
- 3 – Car Inspection and Selection
- 4 – Documentation and Procedure
1 | Ways To Buy Used Cars
1.1 | Private Sale
A large number of cars are purchased through private sale because of the price advantage and the perceived quality of vehicle selection. It is considered a private sale when an individual sells a personal vehicle to another individual, the most straightforward of transactions. Keep in mind that there are individuals who pose as independent individuals selling their vehicles and committing fraud, we cover how to protect yourself from this in Section 5.
Generally you can see prices 10-25% lower than what a dealer would offer. This is because the dealer marks up the vehicle slightly higher for profit and to cover their own costs. Most people selling their own car are only seeking market value for their vehicle.
All purchases through private sale in Ontario are “as-is”. When you purchase the vehicle, all the benefits as well as problems associated with the car will come along with it. If you bought a problematic car through private sale, there is little recourse because the sale was “as-is”. We insist that you use the money that you save by going with the private sale route to get a proper mechanic inspection prior to purchase. Don’t gamble, buy smart and use the money you save to ensure you get a good deal.
Private Sale used car purchases are all paid up front. If you need financing you would have to go through your preferred bank. Please see our article on steps to buy a used car through private sale.
1.2 | Used Car Dealership
The honesty and vehicle quality from used car dealerships vary drastically from great to barely legal. Unlike private sale, the used car dealership has some regulation, but at the end of the day, it is very difficult to get compensation for a vehicle sold to you with undisclosed issues. However, because there is at least some rules associated with purchasing from a dealer, a large number of people are willing to pay a premium for that perceived security.
Used Car Dealerships are able to offer financing and warranty, something that would be more troublesome to facilitate through a private sale purchase. Generally, used car dealerships earn the most from selling you financing and warranty, so if you are looking to get the best deal, we would avoid both options.
One benefit of visiting a dealership is the ability to view all the other vehicles they may have in stock, whereas in private sale you would have to drive out to meet each one. Understanding that since you are buying a car, you may not have the luxury to drive to other locations.
1.3 | Lease Buyout
The best time to buy a car is when it is released from a 3 or 5 year lease. The first 3 to 5 years take out much of the depreciation, leaving you with a relatively new car with a significantly (up to 40%) lower price, making the value proposition very attractive. We consider a lease buyout strategy, which takes place just before the vehicle is released from the lease, the most effective method if you want to buy a newer vehicle. Other reasons why a leased vehicle is a better buy is covered in this article.
Before we get into strategy, we want to remind readers that cars that are already released from the 3-5 year leases are released into the market to used car dealers who then add their own markup. This is why snagging the vehicles before they hit the dealer lots gives you a large price advantage.
All car leases have an option to buy other car after the 3 or 5 year lease has elapsed. Due to the lease holder paying monthly payments for years, this price is competitive with market value, but varies from car to car. The goal is to locate 3 or 5 year lease that is about to expire, takeover the lease and buyout the car at the end. Lease buyout value is established well ahead of time, so by comparing expected purchase price and market value of the vehicle you are looking for, you can have a good idea of what you stand to pay and gain.
Remember that price is not the biggest advantage of buying a lease car. We will write an article in detail of how to exploit this strategy to your advantage.
1.4 | Public and Private Car Auction
You may hear many stories about people getting crazy deals at the car auctions. I’m telling you that you only hear about the good ones, no one likes to broadcast their bad bets. Buying from an auction allows very little scrutiny before purchase. Additionally, most car auctions require you to have a dealer license. The going rate for a dealer to go with you to an auction is $500 regardless of purchase success.
There are public auctions, but these cars are generally the ones that don’t get sold at the dealer auctions or on the first few passes. Keep in mind that when you go to these auctions that you are dealing with the best sharks in the business. We believe that auction cars are a larger gamble than the other options above.
1.5 | Repossessed or Government Vehicles
Repossessed or government cars are even more risky than auction cars. Generally cars that are repossessed are not treated well due to the financial state of the previous owner. Government cars are hit and miss and present similar concerns we see in repossessed and auction vehicles. Both of these options generally do not allow a mechanical inspection at a garage.
2 | Choosing The Best Used Car
Choosing the best used car is a balance between what you need, want and the financial impact and assessment. This section discusses the major costs associated with purchasing a used car. Understanding these costs allows you to select the vehicle that provides the best value to you.
2.1 | Buyer’s Preferences
Which car you should buy, without considering financial impact, is very much a personal preference. However, prior to vehicle selection, you need to carefully lay out exactly what those preferences are. List out the features that you place value on against features that you could do without and consider if the incremental cost is worth it.
The reason why this is important is because you want to maximize value, and value is different for each person based on preferences. For instance, if you are looking for speed, a Chevrolet Cobalt SS is amazing performance for the dollar. However, this car to a family looking for safety and reliability may find better options.
2.2 | Financial Impact
Please read this section carefully, if you care about minimizing cost and maximizing value, this section is gold.
To get the best deal when buying a used car you need to look at the big picture and consider what you are really paying to own a car. While the total price of the car does matter, forget about the sticker price and consider the recurring month to month costs of owning a car. In this section we discuss the financial impact of a vehicle and how to best maximize the deal you are getting by minimizing your financial costs through careful vehicle selection.
2.2.1 | Depreciation and Resale
One of the most overlooked values from used car buyers looking to get the best deal is the depreciation and resale. Like we mentioned above, you should care less about how much it costs overall and instead care more about how much it will cost you each year to own. This real cost of a vehicle is the purchase price subtracted by the resale for your cost of ownership. How well and how much your car will sell for in 3 years is a very important factor because it directly affects your real cost.
This means that cars that are perceived to be less reliable, may be cheaper in purchase price, but has a much pricier real cost of ownership because it will re-sell for much less than a car that is perceived to be more reliable.
Once you have decided on a car, the depreciation and resale discussion is applied towards selecting which car is a better deal with respect to wear, use and expected longevity. This is covered in Vehicle Inspection and Selection.
2.2.2 | Fuel Economy
We all know certain cars are gas guzzlers, pushed aside with the notion that performance isn’t free. I’m here to tell you that whether you care about the environment or not, fuel economy has a substantial impact on your finances. Even if the car you are purchasing is not considered a gas guzzler, you will be very surprised to see that the same person may spend the same amount (real cost of vehicle ownership) between a cheap and expensive car upfront.
The best way to illustrate this is by example.
The 2006 1st Generation TSX is a great car if you want affordable luxury and decent handling. It isn’t too fast, but it is no slouch either at 200hp. The average Canadian drives 25,000 kilometers annually. With today’s gas price at 128.6 per liter, you are looking at annual fuel costs of the TSX at $3,120. This car is currently valued at $8,500 in the used car market.
The 2006 Volkswagen Jetta TDI costs around $10,000 in the used car market. However, the annual fuel costs of the Jetta is $1990, at 38 MPG. This is $1,160 dollars cheaper annually than the TSX on fuel costs alone.
Fuel economy does matter, and it directly affects your recurring costs. Keep it under consideration when selecting a car.
2.2.3 | Insurance
For younger car buyers, insurance will fluctuate greatly based on vehicle. Make sure to check how much insurance costs between vehicles before making a decision. I have seen it vary up to $200 per month.
3 | Car Inspection and Selection
Whether you are buying from a private sale or a dealer, an inspection prior to purchase is required if you want to avoid a problematic car. When thousands of dollars are at stake, we plead with our readers to get a pre-purchase inspection at a garage before you commit. Any dealer or individual who denies you an inspection is a red flag and has higher probability of having something to hide.
Prior to a mechanical inspection, your role is to filter out the cars that will have poor resale. Just because you are ok with a scratched up bumper does not stop your future buyers from valuing the car lower.
With respect to price, compare transmission, cosmetic damage and odometer count. Manual cars are harder to sell, cosmetic damage may imply poor driving habits and vehicle treatment, and vehicles with higher odometers are perceived to be in danger of breaking down. These all affect your resale and real cost of ownership as discussed above.
4 | Documentation and Procedure
The process is different depending on who you are buying from. In this section we link to other articles that explain to you in detail the procedure and things to watch out for.
Before we link it out, we insist that regardless of who you are buying from, a UVIP must be obtained and analysed.
Thank you for reading, please post any questions you have below and it will be added to this guide.