Buying A Used Car Versus Leasing a New Car
A friend recently asked for some candid advice. His lease was up to renewal. Was it better to buy the car he'd
already paid into or buy an up-dated used car?
To answer correctly I told him he'd need to consider the pros and cons of each. There are big differences between buying and leasing. Typically, if
you were to purchase a new car, you would make a down payment and finance the remaining cost. At the end of the term, the car would be yours.
Leasing is essentially renting, with your payment going towards the car's depreciation. If the lease includes a purchase option, you may buy it at
the end of a specific time period.
So which is better? That depends on your individual situation and needs. You will have to decide for yourself by analyzing the advantages and
disadvantages of each:
Advantages of Buying a used car instead of Leasing:
When you buy a used car, it's yours. You can customize it and drive it as hard and far as you want, penalty-free. Rather than having infinite
payments, buying means you will eventually pay the car off. And if you want to sell it you can do so at any time, as you are not locked into a
contract. So, you can own an updated car as frequently as you care to.
Educating yourself about the two financing options will give you the confidence you need when you step into a dealer's showroom.
Buying a used car, especially an off lease pampered car, can give you the best of both worlds. You won't pay for the initial depreciation that you
lose when you buy a brand new car. Paying less in the first place will give you lower monthly payments than on a new car, until ultimately you own
the car and have no payments.
Disadvantages Of Buying New, Instead Of A Used Or Off Lease Car
Down payments on bought cars can be substantial. Monthly payments are usually higher than on a leased car, and once your warranty expires, you will
be responsible for the maintenance costs. When you want to sell it (or trade it in) you will have to go through the hassle of doing so. And, in the
first few years, new cars depreciate dramatically.
Words of Caution about Car Leasing:
A downside to leasing is that essentially you, instead of the owner/dealer, pays for the most expensive years of a vehicle's life. The amount for
which you lease is the difference between the purchase price and the salvage, or residual, value, which is the predetermined value of the car at the
end of the lease period. The amount of the salvage value that the dealer includes in your contract directly impacts your monthly payment.
Advantages of Leasing
Leasing also provides an alternative when buying a car is not an option. Most banks will not lend more than $30,000 for a car loan. If you are
planning to acquire a car worth more than that, leasing may be your only option.
Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes.
There are short-term cost advantages to leasing.
An attractive feature of leasing is the ability to drive a new car every few years. You never have to go through the hassle of selling it; you just
turn it in at the end of the term. The monthly payments on a leased car are usually far less than on a loan – even for a luxury model. The down
payment usually works out to be less than what you would pay for a bought car as well. Because the typical lease is for three years, most repairs
are covered by factory warranty. Sales tax is cheaper too, as you only pay it on the financed portion.
Comparing lease offers can be very confusing, making it hard to know if you got a good deal. And you will find it difficult to get out of your lease
early if you want to – a problem if your driving needs or financial circumstances change. While the payments are often reasonable, you never gain
equity in the car. If you were to buy it at the end of your contract, it would cost you a lot more than if you had just bought it in the first
There are two types of car leases: closed-end and open-end. Closed-end leases allow you to walk away from the car at the end of the lease term. If
you owe for any mileage coverage or unusual wear and tear, this is when you'd have to pay for it.
With an open-end lease (also known as an equity lease), you must purchase the car at the end of the lease period for a predetermined amount. This is
often the type of lease used by businesses or individuals who drive a lot. Most consumer groups suggest that the closed-end lease is the best
option, because it poses less risk upon the expiration of the lease term.
Leases are restrictive. If you exceed the yearly mileage limit you will be assessed an extra charge. You must take good care of the car as well, as
any nicks or dings will be considered "wear and tear" and will cost you.
The mileage restrictions of leasing pose another drawback.
If you drive a great deal during the year, consider instead a loan or an open-end lease (which we discuss below). Most leases restrict your mileage
usage to 15,000 miles per year (sometimes even lower at 12,000 per year). If you go over your allotted miles, you pay extra: the going rate is about
15 cents for every mile over your limit, and 20-25 cents for luxury cars. So, if you go over your limit by 4,000 miles, you can expect to pay about
$800 at the end of the lease.
How to Buy Your First Used Car
Beware of "Dealer Fees." You may be quoted a price that
sounds too good to be true, and then the dealer adds a
mysterious "Dealer Fee" at closing. It may be as much as
$2,000.00 for no reason other than to compensate himself
for lack of profit.
Want to find a great deal on a used car in this tough economy?
Buy the used car that people aren't looking for. There are comparable makes and models to all the top used cars on the market so I did a little
poking around for you and found the best
deals on used cars that may not be white hot in desirability.
You'll like them and be glad to save a few bucks. Plus, your neighbors will envy your contrary way of looking at things. Don't run with the herd.
Car Buying Tips Tailored for Teens
by Jessica Stevenson for About.com
1. Know your budget and stay within it, even if you're just looking. Why not dare to
dream? Because when you look around at cars that are out of your price range the ones that you can afford may seem to pale in comparison.
2. View at least 3 cars that are in your price range before making a
decision. Test drive the car
you choose with someone who knows about cars. Your parents may or may not fit the bill on this one. If they do, great, take them along, but if your
Mom or Dad is an auto mechanical novice make sure you take somebody who knows cars. Take Mom or Dad as well, but a person who is truly knowledgeable
about used cars is invaluable on a test drive.
3. Do your research. Some people think that research stops with knowing the Blue Book value of the car
you're interested in. It doesn't. You need to know about common problems to look
for in the year and model of used car you're interested in, you need to know that the car is in good mechanical condition, you need to know that the
body is in good shape and if possible get a report of any accidents it's been in and copies of all service records.
4. Based on your test drive, your research and your preferences narrow the field
to 3 choices and test drive them again. Ask questions specific to each used car, don't be afraid to ask anything that is relevant to the car's
performance and value even if it sounds silly or stupid. Things like the number of previous owners (1 owner is always ideal), how many accidents it's
been in and how serious the damage was, which major parts that have been replaced or rebuilt, whether or not anyone has smoked in the vehicle are fair
Tests with a 700 Pound Load
The load course was set up with orange cones that took drivers
through curves, straightaways, a short slalum and a quick lane-change maneuver -- all designed to let us experience what it might be like to
handle a loaded truck in a panic situation. The F-150 handled the course better than the other brands, with minimal body roll and less push in the
corners. Don't get me wrong, you could make it push by driving at higher speeds, but the object was to compare all of the
trucks under similar conditions, and the F-150 excelled.
The top researched midsize sedan on Autotrader.com is no surprise - the Honda
Accord. Second would be the Nissan Altima and third is the Toyota Camry. Well, the obvious answer here is used domestic midsize sedans. Topping the
list is the Ford Fusion. It's based on the Mazda6 platform (another personal favorite) and is simply the best domestic midsize sedan in the last 10
years. The 2006 SEL gets almost perfect mechanical marks from Consumer Reports.