Should You Buy New, Used or Lease?

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Once you determine how much you can spend and what kind of car you are interested in, you have to decide if you are going to buy a new or used car or possibly even look to lease. All choices have advantages and disadvantages.

New:

If money was no object, most people would prefer to buy a new car. Not only do you get that nice new car smell, but you get a car that probably won’t need major maintenance for several years, is reliable, and has the most up-to-date safety features. Of course, in the real world, money is an object, and the used version is almost always cheaper. Whereas few people can buy a new car without getting financing, many people can afford to purchase a used car with cash. If you prefer a new car and can afford it, go for it, but there is no shame in getting a used car – financially, it often makes the most sense.

Used:

If you decide to buy a used car, there are many places to get one from, including a new car dealership, private seller, used car lot, rental car company, or auction. You will generally pay the most at a dealership, especially if you get a certified pre-owned vehicle. (Certified pre-owned vehicles undergo a thorough inspection and are backed by a warranty.) However, many people prefer buying a used car at a dealership because they typically have a large selection and if there is a problem, you don’t have to worry about tracking them down like you would if you bought a car from a private seller.

To minimize the risk of winding up with a clunker, it is a good idea to do some research before purchasing a used car. Ask the seller for the vehicle’s repair history and VIN (vehicle identification number). With the VIN, you can run a vehicle history report. (There are a few companies that will do this for you for a fee.) The report reveals such information as whether the car has been in a major accident, if the odometer has been tampered with, and how many past owners the car has had. If possible, take the car to an independent mechanic to have it inspected.

Lease:

Generally, leasing enables you to afford a nicer vehicle for less money each month than owning. As an added bonus, you don’t have to worry about selling it down the road. However, it is important to remember that leasing means renting. When the term of the lease is up, you are usually given the option of returning the vehicle and paying any outstanding fees for mileage or damage (if you go over the mileage limit or fail to maintain the car) or purchasing the vehicle outright. Typically, you will pay more over time by leasing and then purchasing than you would have had you simply bought the car in the first place. If you are unable to make the payments during the course of your lease and choose to return the vehicle, high penalties will likely apply. You cannot simply sell the car like you could if you owned it. Still, many people find leasing more appealing than buying, especially if they want a new car every few years.

Option

Advantage

Disadvantage

New

  • Reliable
  • Warranty coverage
  • Customization
  • Ability to sell
  • Expensive
  • Fees
  • Value depreciation

Used

  • Eventual ownership
  • Cheaper
  • Low insurance cost
  • Retains value longer
  • Customization
  • Ability to sell
  • Lack of vehicle history knowledge (accidents, insufficient maintenance)
  • Limited or no warranty
  • Higher maintenance costs

Lease

  • Lower monthly payments
  • Lower down payment
  • Trade up for a new model every 2-3 years
  • Lower repair costs
  • Lack of vehicle ownership
  • Confusing contracts
  • High insurance
  • Mileage limitation
  • Wear and tear fees