Buying and Leasing Cars | Your Grand Rapids Guide
There are many pros and cons when it comes to buying or leasing a vehicle. Are you looking at new cars or used cars? It is possible to buy or lease either of these. Is the equity you build in buying a vehicle enough to justify it? What about repair costs? What repairs are covered under a lease and what falls on you to pay for? Are you getting a warranty with buying that will cover repairs or will they be paid out-of-pocket? Used cars may also have warranties and coverage such as certified preowned cars. There are many options to consider, and we will be discussing the pros and cons of each to help you make an informed decision.
Pros of Buying a New Car
Low Interest Rates
When you purchase a vehicle brand new, you will get a lower interest rate. The better your credit score, the lower this interest rate will be. This can save you money over the life of the loan. Even if it is just a half or one percent, this could provide big savings in consideration of compound interest.
Most new cars will come with a warranty of some kind. This is usually covers at least 3 years or 60,000 miles, whichever comes first. Many new vehicles even have extended powertrain warranties covering up to 10 years or 100,000 miles. Powertrain warranties cover the engine, transmission and the drive train. Other companies offer a bumper to bumper warranty that is usually for around 3 years or 36,000 miles. This warranty covers everything except “normal wear” items like tires, breaks, oil changes, and windshield wipers.
Having the newest technology is a major selling point for new car buyers. This is an aspect that has improved greatly over the past 10 years. Backup cameras, remote start, and lane assist driving are all examples of this. Some people are either bad at or just don’t like parallel parking. There is technology in some cars that will allow the car to parallel park itself. In addition, advances in fuel technology allow many of the newer cars to get much better gas mileage, or even run on electricity. This could provide a huge savings if you commute a long distance or spend a lot of time in the car. The newest technology also means that the car will have newer safety specifications and standards, making it safer in the event of an accident.
Cons of Buying a New Car
Most new cars will depreciate the most in the first couple years. Some research shows that your new car value will depreciate on average 15% to 20% over the first 12 months of ownership. So consider this factor compared to the savings of having a lower interest rate by buying a new car. Is it worth the trade off?
When purchasing a new vehicle, you will have to carry full coverage insurance if you have a loan on the car. Even if you are able to buy the car outright, with no note, insurance is still higher for newer vehicles. You may see some reduction in rates do to higher safety ratings in newer vehicles. The overall insurance cost will typically be higher though, due to the higher value of the vehicle.
New Model Bugs and Kinks
In buying a new car, you are more likely to have a recall or issue with a vehicle as they are the first to be distributed in mass production. These companies are quite good about thorough testing and quality control to work out most of the bugs before release. There are some problems that still slip through. This is usually a minor inconvenience. You simply take your vehicle back to the dealership and get a loaner while they replace the faulty part.
Pros of Buying a Used Car
Due to the high rate of depreciation in the first few years a vehicle is owned, buying a used car can save a lot of money. You may have a slightly higher interest rate. This increase in interest is usually less than what a new car depreciates in the first couple years though. Also, with used cars being cheaper, it is more likely that you can buy the car outright without a loan. Even if you can’t, you can usually put more money down, further reducing the amount of the loan. This will mean lower monthly payments.
In buying a used car, the majority of the depreciation will have already happened, given the car is at least a year or two old. This means that the value will drop less and less each year that you own it. Given this, when or if you decide to sell it, you will usually get back an amount much closer to the original purchase price than if you bought new.
When buying a used car, the insurance is usually cheaper than a new car. This is because it has a lower value after the first couple years of depreciation. If you take a loan out on a used car, you will still have to pay for full coverage insurance. Even with this though, full coverage insurance on a used car is cheaper than full coverage on a new car.
Consumer Feedback is Available
One benefit of buying used cars is that there are plenty of consumer reviews already out on the vehicles. This gives you solid feedback on vehicles before you even go to the lot to start shopping. This makes it much easier to narrow down what you are looking for. There are many websites dedicated specifically to vehicle reviews, with focus on key components. This may include gas mileage, leg room, towing, trunk or bed space, and features. This feedback is valuable knowledge in the buying process. This also gives you some feedback as to when repairs are expected and how expensive they will be.
Cons of Buying a Used Car
A used car already has some wear on the vehicle. This may be minor or major depending on how the vehicle was treated by the previous owner(s). Many used cars have already passed their warranty period, or are very close. This leaves you exposed to pay for any repairs out of pocket. While most cars are built to last for a long time, some have issues along the way. One option is to purchase an additional warranty through the dealer. This protects you from most repair costs, but typically adds a significant amount to the cost of the vehicle.
When buying a used car, often what you see is what you get. Unless you are at a very large lot with many options, you are often stuck picking between one or two colors for specific models. You also may sacrifice color to get a premium package with leather or heated seats.
You Don’t Know How the First Driver Treated the Car
As mentioned above, the car may have some potential repairs dependent on how it was taken care of by the previous owner. It is often hard to know if regular maintenance was done if the last owner did not keep proper documents. If the oil changes were not done on time, the life of the engine may not be as long. If the brake pads were not changed regularly, then the rotors may have some damage. Many dealerships will do inspections on the vehicle before selling them. Many of these inspections are for safety and short term care though, the long term is up to the owner.
Used cars may not be as up-to-date with technology as their newer counterparts. You can still find used cars with backup cameras or sensors, good gas mileage, and other advancements. Usually the new ones will still have something better though.
Pros of Leasing a New Car
Leasing a new car can give you the perks of the newest technology without the hefty price tag. You can still get great gas mileage, all the newest voice navigation and bluetooth and much more. You get all of this paying only a portion of what a payment would be to buy the same vehicle.
When leasing a new car, it is typically still covered my the manufacturer warranty. This warranty will usually cover the entire time you are leasing the vehicle. Having this means that most of the repairs needed while you have the vehicle will be covered. Knowing that you will have little to no cost out of pocket if something breaks is great peace of mind.
If you really love the vehicle you leased and decide that you want to keep it, there is usually a buyout option at the end of your lease. This option can come in handy for several reason. If you are way over on your miles, typically buying it out is better than paying the cost per mile in overage charges. Conversely, if you are under on your miles, your vehicle has a higher value than what the dealer was expecting when they wrote your lease. If you already payed for this value, than you might as well buy it out and sell it at the higher value. Also if your car has damages and excessive wear and tear, the dealer will charge you for this. It is often more economical to buy it out and deal with it yourself than pay the overcharged fees the dealer will assign you.
Cons of Leasing a New Car
In leasing a new car, you are limited on how many miles you can drive over the term of your lease. If you drive a lot, leasing may not be the best idea. If you go over the allotted mileage, you will be charged per mile over, which usually ranges between $0.15-$0.30 per mile. This may not seem like much but at 5,000 miles over, at $0.20 per mile, that’s a $1000 bill you will have when you turn the vehicle in.
When you lease a car, you are not building equity. At the end of your lease, if you decide not to purchase the vehicle, you have nothing to show for it. You are back at square one, needing a car again. Hopefully you planned ahead and saved for another car, or you are willing to take on another lease to have another new car with newer technology.
When you lease a car, since it is not yours, you must carry full coverage insurance on the vehicle. This can sometimes cost as much as the lease payment itself. Being a new car, the insurance is higher due to the higher value of the car as mentioned before. This cost will vary depending on the make and model of the car you choose and your insurance provider.
Pros of Leasing a Used Car
If you want to lease, leasing a used car is much cheaper than leasing a new car. The initial depreciation is already accounted for, thus making your payments lower. This savings will make it easier for you to save up to either buy out the lease or get another car when the term is over. Many dealers do not advertise leasing used cars because they make less money but it is usually an option.
Cheaper Buyout Option
At the end of your lease term, it is cheaper to buyout a used car lease than that of a new car. The car, after the lease term, is usually at least 4 years old by that point. This makes for a cheaper price point in buying out the lease. As mentioned above, this may be a good option if you are over on miles or have excessive wear and tear on the vehicle.
Insurance is cheaper on a used lease than on a new lease. You will still have to pay full coverage since you do not own the car. Even with this, the car has a lower value and will typically have a cheaper insurance rate to match. This can have a huge savings over the life of the lease, saving you even more money than leasing a new vehicle.
Cons of Leasing a Used Car
Similar to leasing a new car, you will have mileage restrictions in leasing a used car. They may charge you less per overage mile in a used car, but it can still add up quick if you are too far over. The dealerships make a lot of money on leases that are over on miles. If you are afraid of going over, consider getting a second car or possibly buying out your lease. Some plans allow you to add mileage to a lease as well.
One downside to used cars is that you will not have the most up-to-date technology. Typically, a used car lease will still be a relatively new car, only a couple of years old. Many cars in this range still have backup cameras and remote start. You may sacrifice having voice control navigation or lane assist driving but that is a trade-off on the cost.
Many used cars are either past their warranty or are coming up on the end of it. Chances are that if you lease a used vehicle, it will not have a warranty by the time the lease is up. This means that repairs may be needed before it is time to return the lease. This can be an added out of pocket expense that many people do not plan for. Be prepared that you might have to do some maintenance before returning your lease.
Now that you know the pros and cons of each option you are able to make an informed decision. I am not going to tell you which is better than the other because this comes down to each person’s personal preference and financial situation. Personally, I would prefer to buy a used car. This is because I will not lose out on the initial depreciation cost and will still have ownership of the vehicle, or at least build equity before deciding to trade it in or sell it. Please comment your opinions or preferences below for what you prefer. See a point that I missed? Go ahead and put it in the comments.