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Chapter 2: Should You Buy New or Used or Lease?

Once you determine how much you can spend and what cars you are interested in, you have to decide if you are going to buy a new or used car or lease. All have positives and negatives.

  • New vehicles are usually the most reliable.
  • You will be covered by a manufacturer’s warranty, which typically covers certain repairs and parts replacements for several years.
  • It is easier to customize and get exactly what you want.
  • New vehicles can be very expensive – not just the purchase price, but also the insurance and registration fees.
  • The value of the vehicle depreciates almost immediately
  • Used cars are cheaper than their new counterparts, and you may be able to use savings to purchase the vehicle outright.
  • The value of used cars tends to depreciate less quickly than for new cars.
  • You may not know the vehicle’s history. It could have been in an accident or insufficiently maintained, making it less reliable.
  • Used vehicles typically have no warranty or a limited or soon-to-expire warranty.
  • The maintenance costs are usually higher than for a new car, and it will likely have to be replaced sooner too.
  • You can drive a new car every few years without having to worry about selling your old one.
  • You may be able to get a lower monthly payment with a lease than with a car loan.
  • Leased cars are typically covered by a manufacturer’s warranty.
  • The required up-front costs of leasing a vehicle are usually low.
  • The vehicle does not belong to you – it is not an asset.
  • It is difficult to get out of a lease contract if you become unable to handle your payments.
  • The costs of insuring a leased vehicle can be very high.
  • There is a limitation as to how many miles you can drive the car (usually 10,000-15,000 miles annually), and you must keep it in good condition. Non-compliance can result in extra fees.

If money was no object, most people would prefer to buy a new car. Not only do you get that nice new car smell, but you get a car that probably won’t need major maintenance for several years, is reliable, and has the most up-to-date safety features. Of course, in the real world, money is an object, and the used version is almost always cheaper. Whereas few people can buy a new car without getting financing, many people can afford to purchase a used car with cash. If you prefer a new car and can afford it, go for it, but there is no shame in getting a used car – financially, it often makes the most sense.

If you decide to buy a used car, there are many places to get one from, including a new car dealership, private seller, used car lot, rental car company, or auction. You will generally pay the most at a dealership, especially if you get a certified pre-owned vehicle. (Certified pre-owned vehicles undergo a thorough inspection and are backed by a warranty.) However, many people prefer buying a used car at a dealership because they typically have a large selection and if there is a problem, you don’t have to worry about tracking them down like you would if you bought a car from a private seller. Auctions often provide the best deal, but they can have major drawbacks. Auction cars are usually in bad shape and sold “as is”, and you may not get a chance to thoroughly inspect them or obtain the repair history. Plus, if the bidding is competitive, it is easy to get carried away and wind up spending more than you intended.

To minimize the risk of winding up with a clunker, it is a good idea to do some research before purchasing a used car. Ask the seller for the vehicle’s repair history and VIN (vehicle identification number). With the VIN, you can run a vehicle history report. (There are a few companies that will do this for you for a fee.) The report reveals such information as whether the car has been in a major accident, if the odometer has been tampered with, and how many past owners the car has had. If possible, take the car to an independent mechanic to have it inspected.

Generally, leasing enables you to afford a nicer vehicle for less money each month than owning. As an added bonus, you don’t have to worry about selling it down the road. However, it is important to remember that leasing means renting. When the term of the lease is up, you are usually given the option of returning the vehicle and paying any outstanding fees for mileage or damage (if you go over the mileage limit or fail to maintain the car) or purchasing the vehicle outright. Typically, you will pay more over time by leasing and then purchasing than you would have had you simply bought the car in the first place. If you are unable to make the payments during the course of your lease and choose to return the vehicle, high penalties will likely apply. You cannot simply sell the car like you could if you owned it. Still, many people find leasing more appealing than buying, especially if they want a new car every few years.

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