Buying vs. Leasing
When acquiring that car, actually purchasing it makes it worthwhile over the long term. Leasing in the short term is another option. Like most everything, reading the fine print and understanding the contract is imperative when leasing a car. Buying and leasing really can accomplish two different purposes.
If you’re looking for a new car every three years or so, leasing can make that happen as you’re paying the depreciation of the car over those three years, before trading it in for the next model and its lease. When leasing make sure to understand these:
- The main payment is essentially a finance charge on the car’s depreciation, plus interest. You’ll be paying that plus sales tax and other fees, instead of applying your payments to principal and interest payments if you purchased the car.
- Since you’re paying depreciation, there are limits on mileage and normal wear. There are fees associated with extra mileage and extra wear that would affect the price of the car when you turned it in.
- Leasing usually results in lower monthly payments accompanied with a lower down payment than purchasing since you aren’t paying for the full price of the car.
- You are able to have a new car every few years depending on the exact length of the term.
- Purchasing a car outright allows you to drive it for as long as it lasts, which helps to make the price and depreciation worth it. The long term cost of the car is less if you purchase it than if you would have leased cars over that same time period.
- Buying a car usually results in higher monthly payments which makes a bigger difference in what you’re actually paying month to month.
- The car is yours from dropping in value when you drive it off the lot, to when it’s paid off and you’re enjoying life without a car payment. That also means the maintenance costs are also your responsibility, unlike leasing where most everything is still covered under the warranty.
- Buying the car costs less in the long run, so if you’re looking for a car to drive for the next 6-8 years, you’ll probably be making the right choice to make it yours.
Dealer vs. Bank Financing
When it comes to finding the loan, make sure you aren’t going to the dealer without having an interest rate and loan in hand from a bank or other lender. Make the dealer beat that rate, so you don’t have worry if you’re getting a good deal or not from the dealer’s lenders. Double check that the total price they give doesn’t include things like extended warranties, maintenance contracts or gap insurance that you didn’t agree to.
When exploring car loans, look at the total price of the loan and not just the monthly payment. That way you’re not looking at a lower monthly payment that inflates how much interest you pay over the longer term. Try as best as you can to limit the loan to three years or less and make sure you have as large a down payment as possible.
Buying A Quality Used Car
That brand new car may be out of reach, but a reliable used car can be cost effective and still last for years down the road. To make sure you’re getting a good deal, remember to do your homework.
- Determine what specifically you want. Set a price range and a type of car that fits your needs. Then research your way into your options.
- Do your research on the car you’re looking for. Used cars mean people have driven them and someone has written about the pluses and minuses of the specific model you’re looking to buy.
- Figure out what “certified” means at that dealership.
- Don’t be afraid to use your own mechanic to determine what might need repaired and what shape the car is in. Many auto shops will do an inspection for a small fee.
- Remember to add around 7 percent to the price for registration and taxes, which you’ll pay to the state.
A branded or salvage title can help to save money if you’re prepared to own a car that has had a checkered past of some kind. Usually, these cars have been part of theft recovery, hail damage, collision, water recovery, manufacturer buyback or a lemon law. Doing your research on the car is important to make sure it is structurally and mechanically sound and meets your needs. Check with your insurance and lender to make sure there aren’t any restrictions on these types of cars and what you can expect during the approval process.
Refinancing Your Auto Loan
Refinancing your auto loan can be a tricky thing to figure out if it’s worth it. The math moves in your favor if you can find a better loan than the one you currently have. If you do refinance, the bank will only loan you money based on the value of your car at that time. So, if you owe more than the car is worth, refinancing is not generally a good idea.
- If you can drop your interest rate either because they have fallen or because you have improved your credit so you can get a lower rate.
- If your financial situation has improved and you can finance the total cost over a shorter term, paying more each month, but paying less interest.
- In most cases, you need to be relatively early in your loan, so there’s enough remaining capital and interest to make the savings worthwhile.
If you’re searching for times when you shouldn’t, make sure you aren’t chasing something that won’t happen.
- If your original loan has a pre-payment penalty it makes the margin of profit even thinner.
- Make sure you’re not just extending the term and not really saving money in the long run. A lower monthly payment doesn’t always represent savings.
No matter what vehicle you’ll be purchasing always know what your expenses will look like when you’re driving it everyday.
- Scheduled Maintenance – Be ready for those 30, 60, 90 and 120,000 mile tuneups. You can call ahead and see how much work the dealer usually does at each interval. Ask for a coupon or discount or go over these costs with the dealer prior to purchasing so you know what to expect and if there’s a way to save money.
- Car Insurance – A new car means more value to protect, which means higher interest rates. Other things to look out for include thinking about who will be driving the car. For instance, a teenager with a V6 will cost more than if they were driving a four cylinder.
- Lifetime wear – Research how long tires, brakes and other parts of the car last on the average, so you can plan for those expenses in your periodic savings. Then you won’t be surprised when you need to get work done that isn’t covered under the warranty.
- Gas – The car’s gas mileage will give you a pretty good idea of how far you’ll be able to go compared to what you’re driving at the moment. If you’re cutting your mileage, are you prepared to budget more for gas?
- Cost of ownership – Some cars require just a little bit more if you want to keep them running well. Premium gasoline or other requirements drive the expense up a little higher than the average. Make sure you understand what upkeep looks like to make your car a benefit to your life and not a hassle.