Buying a new car can be a bit of a minefield. There are so many different options that it’s difficult to know whether to go for something new or used or whether to lease or purchase. Here we’ll take a look at the advantages and disadvantages of each, so that you can make an informed decision!
Most of the differences between used and new cars are fairly obvious. New cars are far more expensive than those which are a few years old – this is due to something called depreciation, which we will touch upon later. However, car dealers often offer finance packages to help you spread the cost over time, which private sellers of used cars won’t do. Furthermore, used cars are much more likely to face problems in terms of reliability, as the parts will wear down over time. New cars are usually covered under the manufacturers’ warranties for problems like this, which isn’t the case with used cars – meaning that repairs and maintenance can be cripplingly expensive.
The trouble with cars is that they’re unlike houses, which usually rise in value over time. Cars, on the other hand, are constantly losing value, from the moment you drive them out the parking lot – even while they’re sitting unused in your driveway. This is the aforementioned depreciation, and it’s influenced by a number of factors including fuel consumption. If you choose a gas guzzler, its price will depreciate much more quickly than a car with good fuel consumption, especially if fuel prices rise.
With that in mind, is it best to lease a car or buy one?
Leasing has experienced a boom in popularity in recent years. It’s estimated that one in four cars in the United States are bought using this method. Essentially, it is a long-term rental system where you pay a deposit (usually around the equivalent of three months’ worth of payments), then pay a fixed price each month for a set period of time. This is usually two or three years. At the end of the contract, you hand the car back. It’s as easy as that!
Purchasing a car outright is obviously an arrangement where you pay a set amount each month for a fixed period of time, after which you own the car and can do with it as you please.
In these simple terms, it might sound like purchasing is the best option, however, the monthly payments are usually two or three times the amount that you would pay should you lease a car. With that said, you would pay more each month, but you have something to show for it at the end of the payment period- you have the car, which you can sell and earn some money back (taking into account the fact that its value has depreciated). With leasing, you might pay less each month, but at the end of the two or three years, when you hand back the keys you’re left with nothing.
Regarding the deposit, purchase agreements require a much larger deposit than leasing – it is between 20% and 50% of the car’s price. This can be hefty; the deposit alone can be more expensive than the entire price for a used car! The down payment for leasing a car is much more affordable, though. Typically, it is equivalent to the monthly payments made over three to six months. The fact that it’s cheaper is a benefit in itself, but it gets better. Most lease companies will offer you a choice on whether to put down a bigger deposit. Doing so is a good idea, as it will reduce the subsequent monthly payments for the rest of the contract.
When you lease a car, often there’s an option to add a small extra charge onto each monthly bill, which covers the cost of servicing. This is very helpful, rather than having to pay out one bigger lump sum once a year, as is the case with purchasing a car. However, the warranty from the manufacturer normally covers the period for which you’ll be paying for the car in both the case of purchase and lease, so there is no benefit to be gained in this case from one above the other.
As if all of this wasn’t good enough, one of the most appealing aspects of car leasing is that most of the time, it’s possible to get a car which would generally have been out of your price bracket to be affordable. This is made possible by the set monthly repayments and the fact that you don’t own the car at the end. In addition, every few years you’re able to drive a new model, rather than being stuck with an older model which is constantly depreciating in value and becoming outdated in terms of technology.
It’s clear that there are advantages and disadvantages to all the options, whether buying new or used, lease or purchase. With the lease and purchase options, buying a new car is becoming a lot more affordable nowadays than it used to be. Car leasing is a fantastic option – the only major drawback is that you pay thousands of dollars over a few years, and you’re left with nothing to show for it. This is one of the main reasons why you might want to choose purchase over lease instead. However, for many people, even these options are too far out of reach financially. Sometimes buying used is the only option, and there are still some great deals to be had. Sure, there are more risks, but if you search long and hard you might find a hidden gem. Whichever route you go down, choosing a new car is all about finding the best deal within your price range!