Car Buying: Should You Buy Used, New, Leasing, or Borrowing?

What’s your smartest move?

With the exception of the newborn baby smell, is there anything more amazing than the smell of a new car?

I’m not sure that there is.

I, personally, have never owned a brand new car because of my aversion to depreciating assets.

However, I will agree that I have a very narrow world view when it comes to owning vehicles. Honestly, if someone much more powerful than I decreed to me, “You shall drive a rusty, rickety pickup truck for the rest of your days!” I truly wouldn’t really care.

I really, really, really wouldn’t. To me, a car is a means to an end. You get in the car. You drive somewhere. You get out. End of story.

But I get it. People take pride in their vehicles. It means something for people to have nice things. We all have our priorities. In addition, I do believe that every person is different, and vehicle needs are different from person to person as well. I’m definitely not trivializing those facts.

In fact, here’s an example of a vehicle need that fits a specific individual’s circumstances:

Sarah is a brand-new college graduate. She’s single and lives by herself in an apartment complex. She’s in need of a car because her old one crapped out, right in front of her dorm room.

She bought a dependable, used car with a 36-month loan, which probably made the most sense in this circumstance, because:

1. She didn’t have the cash to buy a car free and clear.
2. She’s a young, single woman who needs something reliable—not a junk bucket. Her new job, which she just started after graduation a month ago, has her driving ½ hour each way to work daily.
3. She needed something right then. She hadn’t planned on her car crapping out!

Here’s another one:

Becky has been driving a 2003 Oldsmobile Bravada for five years. The Bravada has started to outgrow her family (a husband, two kids, a cat and a dog have been added!) but she keeps driving it, even though her husband has been bugging her to get rid of it. “Size-wise, it doesn’t make sense!” he declares. She finally caves and goes to the dealership, where she buys a used minivan with cash. This probably makes the most sense in this circumstance, because:

1. She has the cash to comfortably buy a minivan free and clear.
2. She’s not terribly worried about the reliability of the vehicle, and her husband happens to be a handy guy. He fixes everything on his own.
3. The size of the vehicle she bought finally fits her family.

Here’s my last scenario:

Mitchell just graduated from college. He’s got the whole world by the tail, and the first thing he does is secure his first job at an insurance company. Then, he finds a nice, big two-bedroom apartment, then starts eyeballing a brand new Dodge Viper. He leases the Viper.

Notice that in the first two scenarios I provided, there’s a common theme. Both Sarah and Becky bought used cars. In Sarah’s situation, she signed for a car loan for just 36 months. Mitchell leased, which you can never get me to agree is a good idea.

Two mistakes I wholeheartedly believe are just that—big mistakes:

1. Signing for a car loan longer than 36 months. By the time you’ve signed for a longer loan, your car just depreciates that much more.
2. You never, ever, ever own the car. You never, ever, ever own the car. Do I need to repeat that again?

Again, however, there is a circumstance for every person under the sun. So, with that, here is a list of benefits to buying a new car, a used car, benefits to buying in general, as well as the downsides to both buying and leasing a car. It’s important to make a good decision for you, and at the same time, understand all the positives and negatives for each. Good luck, happy shopping, and good luck at the dealership (oh, boy, is that a topic for another day!)

Benefits of buying a new car:

• That delicious new-car smell! (It bears repeating, twice.)
• You’ll be driving a brand-new car, which typically equates to driving a more reliable vehicle.

Benefits of buying a used car:

• The price tag is always better with a used car.
• Your depreciation will be less. It’ll still depreciate but will just depreciate more slowly.
• You’ll save on the sales tax. Many state laws subject new cars to state sales tax, but not used cars.
• Your registration fees will be cheaper—new car registration fees can be much pricier than used car registration fees.

Benefits of buying:

• You’re the owner. Keep the vehicle for five months, ten years—it’s up to you!
• You can sell or trade in at any time; you’re not subject to the lease contract.
• If you sell your car and you’ve taken out a loan for it, money from the sale can be used to pay off your loan balance.
• You can drive as many miles as you want.

Downsides to buying:

• You’re stuck with the repair charges if anything is wrong with the car.
• You may not be able to afford a really new vehicle, therefore, it could be less reliable.
• If you take out a loan, loan payments are usually higher because you’re paying for the entire cost of the vehicle, plus interest, taxes, and fees.

Benefits of leasing a car:

• That delicious new-car smell! If you decide in leasing a car, typically, you’ll be driving a newer, more reliable vehicle.
• A small down payment (or not one at all) is the only down payment required.
• The monthly payments are lower than with a car loan because you’re only paying the cost of depreciation during the lease term, in addition to interest, taxes, and fees.
• You’ll always be covered by the manufacturer’s warranty.
• If there’s a defect in the car, it’s not your problem—the car is serviced by the company.
• You’re not saddled with the car at the end of the lease—especially if you decide you’re not in love with the car.

Downsides to leasing a car:

• You’ll never, ever own the car—leasing is merely a long-term rental.
• Leasing a car costs you more than an equivalent loan in the long run, mostly because of high finance charges.
• You’ll never have any equity in the vehicle.
• You’re never done with your monthly payment, and if you lease one car after another, you’re really never done.
• If you go over your miles, you’ll pay a penalty.
• Wear-and-tear charges do apply.
• If you end the lease early, whoa buddy! Be prepared for some major charges.
• You’ll have to make a decision about what to do for another vehicle at the end of the lease. That’s why some people are stuck in a never-ending cycle of lease after lease.