Buy, Finance Or Lease?
How you will pay for your next ride is essential to the process. You can buy the car straight away, borrow the full purchase price or lease it for a few years.
If you have the cash, paying the full amount up front has its beauty. Not having car payments is a wonderful thing. If you finance or lease, the bank will require you to carry full insurance. If you own the car, you can have the minimum if you're willing to risk it. Driving an old beater that is paid for with cheap insurance is a happy feeling, if you're not too self-conscious. If the car needs an expensive repair, get rid of it and move on.
If you don't have enough cash, or any cash, then borrow. This is a familiar method. You will make monthly payments until the loan is paid off. Then you own the car.
Is the payment on a cheap old car less than on a new one? You would think so, but no. Would you loan someone money for six years on a car that may blow up in two? Neither would a bank. The length of the loan on a used car will be shorter than a new one, plus the interest rate will be higher. So when the salesman says you could get a new car for a similar payment as a used one, he is probably right.
Leasing is something not everyone understands. Essentially, it is a rent-to-own arrangement. You make payments on the car for a fixed term (commonly 36 months) and at the end of the term, you have three choices. You can give the car back with some fees depending on the condition and agreement. You can buy the car for a price specified in the lease. Alternatively, you can lease another car from the same company.
An important number in the lease is the residual value. Typically, it is about 55 percent. That is the guaranteed value of the car at the end of the term. You will be financing 45% of the car's value over three years, thereby getting a lower payment.
Leasing works well for people who like to stay current. Every three years they have a new car. It's always under warranty. You had better love the brand, though, and be loyal.
However, leasing restricts how much you can drive. Most leases require you to drive no more than 15,000 miles per year. You will pay extra for exceeding that limit. In addition, any modifications you make to the car will need to be removed if you turn the car in, or you will pay for that too. Want to tune the engine, paint flames up the sides, chop the top, build a custom dash and replace the rear seats with gigantic speakers? Don't lease.
We scratched the surface of the car buying experience. Hopefully you're feeling a bit smarter. Enjoy your new car!