Whether this is your first foray into your own set of wheels or you’re simply replacing that old jalopy, you’re faced with a few choices. For starters, you need to decide between a new or used car, and once that’s out of the way, will you lease or finance it? All these choices come with their own benefits and pitfalls, and it’s worth looking into each of these to find your best solution.
Buying New
Nothing beats that new car smell, but that whiff of “eau de new” shouldn’t be the sole reason for opting for a new car. It’s also not about having the flashiest wheels in the neighborhood. When deciding on a new car, consider the advantages and disadvantages.
Advantages of Buying a New Car
A new car can be a great new addition with several benefits:
Warranties
A new car has the advantage of a list of warranty and service add-ons, such as the option to sign up for a five- or 10-year service plan. While these may also be offered on used cars, the conditions tend to be a bit more restricted, and these plans are also more costly.
Performance and Reliability
It’s unlikely that you’ll have issues for those first couple of years unless there’s an actual manufacturer’s fault or you have extreme driving habits. You don’t have to worry about the previous driver’s driving habits.
Finance Options
There should be a whole range of finance options from banks and lenders to the actual dealership itself. New cars also tend to encourage those low-interest deals.
Your Choices
When you buy new, you get to decide all the added features you want to be included. You can also decide the seat trims, wheels, and paint color.
Latest Technology
The technology and safety features change almost every year. When you buy new, you get access to the latest of these features. Most brands are starting to incorporate top-line safety features throughout their line.
Disadvantages of Buying New
Buying a new car can seem like a good choice, but there are some possible pitfalls, too:
High Price
New cars can be pricey, especially if you’re adding in some extra features. You may also be required to put down a sizable deposit, which can really eat into your cash flow. Furthermore, some institutions may also require additional insurance to cover the possible gap between the value of the loan taken out and the value of the vehicle.
Rapid Depreciation
The moment you take ownership of your new car and leave that dealership’s floor, the value depreciates. While some cars hold onto their value a little better than others, it’s an anomaly to make a profit on a new car as a buyer.
Lease
If you do a reasonable amount of driving, especially for work or carpooling, a fresh set of wheels every couple of years might make sense, which makes a lease agreement more appealing. However, it’s worth comparing the pros and cons of this type of agreement.
Advantages of a Lease Agreement
Leases can be a flexible financial way of securing a car. Here are some of the advantages:
Warranties
A lease car often includes its own warranties, which reduces the burden on you as the driver, whereas you would be liable for this yourself as an owner if you buy the car. The cost of the warranty is usually included in your monthly installment.
Lower Installments
Leasing a car often means lower installments, as you’re not paying off the capital but rather “renting” the car for a set period. Because you’re not bogged down by interest costs or capital repayments, leasing companies offer lower installments than you would pay if you had the intention of owning the car at the end of the period.
Lower Deposits
A leasing agency might require a deposit. However, these tend to be significantly less than those required when you buy a car.
A New Car Every Couple of Years
If you spend a substantial amount of time on the road, a lease might mean fewer expenses on maintenance and services. This is because you’re able to trade out the model for a different one in the fleet every couple of years. This also means you’re potentially exposed to the latest safety and technology upgrades.
Disadvantages of a Lease
There are some downsides to a leased car:
Not Owning the Car
While there’s the option of a lease buyout, you’ll need to pay a substantial amount. You may need to finance the buyout if you don’t have the cash available. In the long run, this may end up being more costly than buying a car.
Restricted Mileage
Lease agreements have restricted mileage, and if you exceed that, you’ll have to pay an extra premium.
Buying Used
A used car may be a great way to save some cash on your car purchase. However, it comes with its own list of pros and cons.
Advantages of Buying a Used Car
Used cars can be a budget-friendly choice. It may have some other hidden advantages too:
Low Cost
A used car has already experienced some depreciation. You can even get the same year model for a reduced price, even if it’s only been on the road for a few months. The lower value of the car also means lower insurance costs.
Existing Warranties
Warranties are still available for used cars. These might be more expensive than those offered on new cars, but the savings on the overall purchase might be worth it.
Disadvantages of Buying a Used Car
Used cars might be cheaper, but they also have potential risks:
Driving History
There’s no way of telling whether the previous owner or owners had good driving habits. Complete service history and an inspection by a licensed car mechanic are two ways to have some peace of mind. There’s very little opportunity to discover whether you’re buying a lemon.
Wear and Tear
Even with the best driving history, there’s no way of knowing which of the high-cost items is going to go next. For instance, the gearbox may need replacement after a certain number of miles.
Lack of Choices
When you’re buying a used car, you’re buying someone else’s list of preferences.
Which One To Choose? Buy New, Buy Used, or Lease?
While each one of these has its own sets of advantages and disadvantages, it’ll come down to your personal financial situation and needs.