Wednesday, December 27, 2006

New Car, Used Car, or Leased Car?

Now that my car has been creaking quite abit (bad suspension), I'm tempted to look into buying another. Thus, three scenarios have presented themselves to me..

* Buying a new car
* Buying a used car
* Leasing a car

New Car Purchase:

This is the ideal choice, of course. Ok, not really the ideal choice financially but emotionally, it might be. Having a nice new car would mean that I would no longer be the target of the following comments; "THIS is what you're driving?", "Were you born before or after your car?", and "You need a NEW car.".

Nowadays, car financing term has become longer than the old two or three year periods. Since our salaries aren't necessarily growing to match the rising car costs, car loans have been dragged out to 60 or 72 months loans to get those "affordable" monthly payments. Generally, the longer the loan period, it is more likely to be attached with a higher interest rate.

Of course, I could put a downpayment down but that would mean that my emergency savings fund would diminish. Also, with a new car, there'll be the higher DMV and insurance fees. My little money pouch will definitely be hurting for the first couple of years.

Leasing a Car

Lower Monthly Payments! This could lead me to believe that I can buy a more expensive car than I can honestly afford. Temptation.. Temptation. In fact, my brother-in-law was infected with that Temptation virus and has just leased a BMW for my sister yesterday.

Also, the only sales tax for a leased car is on the allotted car value over the lease term. This definitely means, there's less money going out of my pockets.

But, I would have to either renew the leasing terms or exchange it out for another car in three years. Also, I'd need to keep to (on average) the allotted 10,000 or 15,000 driven miles per year or I'd have to pay per mile past the allotted miles. Granted, it's only a few cents per mile (ex. $0.16/mile etc.) if I pre-pay but living in Southern California means alot of driving. Even driving to my work each day to and fro means I'm driving a little under 50 miles each day at a minimum. Running errands during lunch time or after work would definitely put me over 50 driven miles/day. Either I don't go out or it'd be impossible to keep to the allotted miles without paying extra.

If I buy a car, I am definitely looking to keep the car alive for at least ten years and not change it out after five years, so after the loan term is paid off, with a new car, my only expenses will be for DMV fees, insurance, gas, and maintenance fees. Leaning toward a new car purchase at this point...

Used Car Purchase

They're usually cheaper since they'll be a couple of years old already. Loan interest rates are usually higher for used car purchases, so it might be more prudent to pay fully with cash for a used car. Maintenance and repair costs might be higher since it'd be an older car. These costs may rise more rapidly with each year.

Thus, it might be the biggest dent in terms of money exiting my savings initially. With no interest/loan to pay for each year, in the long run, this is the cheapest option. It would also mean the death and yet another very eventual re-birth of my emergency savings.

Bright side: I can drive it until it dies on me.

Decision: I'm going to keep driving until my current car putters out and re-read this post again in a year.
I know....
I am cheap.

3 comments:

  1. I am all about keeping a used car for the long haul. I recently got a used 2003 Toyota Corolla (very highly rated by Consumer Reports), and it rocks! There are stories of people driving Toyotas 250K to 500K+ miles. Also, be careful if you shop at a dealership. Read this crooked car dealer news feed first. The sharks are in the water!

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  3. I have been in this situation several times. I have done all three scenarios. Here is what I learned. Buying a car is great because its new - BUT I now have a car payment for however many years and higher insurance for full coverage. Leasing a new car was nice becuase, as you say, the lower payment. Although I knew it the whole three years, it still killed me when I had to give the car back - then I was holding nothing to show for all my payments AND they charged me an additional $1600 because the bumper had a ding in it from a shopping cart attack in a grocery store parking lot. Buying used cars - this is a roll of the dice - who can you trust? Its a hard decision. Where I am at right now is I have an old paid off SUV and I'd much rather pay a few hundred in repairs every couple months than to pay a car payment. Good luck with your decision and good luck keeping your car on the road! I've found that sometimes repairs aren't nearly as bad as you might think they will be and much less than paying car payments.

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