Saturday, March 24, 2018

New Car vs Used Car


"The value of a new car drops like a rock the minute you drive it off the lot!"

"Buying a used car is one scary thing to do!"

The age-old debate carries on.  But the times they are a changing.

Cars are no longer loosely screwed together buckets of bolts, and car dealers no longer wear plaid suits. Fact is, cars last longer than they used to; there's better materials, safer designs. And the "information age" has led to a more transparent car buying experience too.

If you spend enough time looking, you can find great deals on both new and used cars. But what really differentiates the two?
  • Is it the price?
  • That 'new car smell' perhaps?
In truth, there are many differences. The most obvious place to start is the mileage and condition of a used car vs. the never-used-plus-warranty condition of a new ride. Granted, you can save some coin by getting a slightly used version of the new car that you want. But you're not going to be able to pick the options, and you might not qualify for the complimentary maintenance programs that many car companies are now offering.

We could go back and forth on this all day, so let's just examine a few of the key arguments, and see if we can find a winner.

Wednesday, February 28, 2018

Buying a car Vs. Leasing a car

Buying a car Vs. Leasing a car

We've all seen those super-low lease rates on TV. "Get a 2019 Wiz Bang SE for only $299 per month!!!", then the disclaimer voice cuts in, telling you that you that this deal is only for "well-qualified customers with $69,000 dollars down". So is this actually a good deal in disguise?


What is a car lease?

Leasing a car is like leasing an apartment. You pay rent for the time that you live there / drive the car, but you never actually own the apartment / car. Granted, you never have to pay for maintenance or repairs. However, over the lease term, you windup spending a lot of money, without ever getting ownership. So how does this make sense?

To understand the financial difference, let's look at something called Depreciation.

When the Whiz Car Company sends a brand new Bang SE to the dealer, there's a certain value attached to it. This comprises a retail markup for the dealer, which goes away once you buy the vehicle. So if you get a $30,000 ride, that's only estimated (by the bank/finance company) to be worth $19,500 at the end of your 24 month lease, then you're financing the $10,500 in depreciation, plus finance charges & interest. If you actually purchased the same car, you'd be financing the entire $30,000, plus interest and finance charges.

This is why the monthly payment on a lease is so much cheaper.

During your lease, you're limited to driving the car a certain amount of miles per year because the mileage will ultimately help determine its value at the end of the lease. You're also for forbidden from making any changes to the vehicle (such as different wheels, or stereo equipment), as this too will effect the vehicle's resale value.

The up-side is, you can return the vehicle at the end of the lease, and get a new model. Or, you can buy the vehicle outright, by paying the remainder of the vehicle's value. Plus, you don't have to pay for repairs (and maintenance in most cases) during the lease term. Just gas it up and drive.

Wednesday, February 14, 2018

Financing a car: What are my options?

Financing a car: What are my options?

When buying a car, you have three options: pay cash, get a loan, or lease. So let's look at each option in detail, that way you can decide which option is best for you.


Cash

Obviously, buying a car outright is the way to go. You have no payments, so you'll save a ton of money on interest. And you can usually negotiate a pretty good deal when you're paying cash. But this isn't practical for most people because cars are expensive, and money is getting increasingly hard to come by these days.

However, you still have two options. Option A: You could take the money that you do have, and try to find a good condition, low mileage, older car. It might take some searching, but there are older vehicles out there with extremely low miles. And you can usually get them for $4-10k (depending on what it is of course).

Option B consists of using your available cash as a down payment on your next car. This will reduce the amount that you have to finance, which in turn, reduces your monthly payments.