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Getting a Car

07/15/2020 - Responsibly Borrowing & Managing Credit

Older smiling couple with sunglasses sitting in a topless car. Older smiling couple with sunglasses sitting in a topless car.

When looking for a new car, you have three main options: buy used, buy new, or lease.

There are pros and cons to each method. Your choice will be based on various financial considerations, driving habits, and personal preference. Use our auto loan calculator to understand how much financing you might need and your total cost with interest. Then you’ll know how much you need set aside in a savings account before you’re ready to buy.

Used

Buying a used car is appealing to many people. Used cars are less expensive up-front, and they have the added benefit of not depreciating drastically when they leave the lot. Because you are buying a used car and saving sometimes up to 25-30 percent, you can usually afford to buy a higher class of car than you could if you bought it new.

If you do choose to buy a used car, there are some costs not typically associated with buying new. For example, you’ll want to have the car checked out by a trusted mechanic. You may need to do some maintenance work on the car much sooner than if you bought a new one. However, today’s cars are much more efficient and can go longer between scheduled maintenance visits than in years past.

Buying used also presents other financial benefits. Car insurance rates are often lower for used cars than new, and registry renewals are often cheaper. This can save you hundreds or more over the life of the car.

New

Buying a new car does have some advantages—and one major drawback. Buying used will save you money, but new cars have their perks.

You may be presented with more financing options and new-car incentives such as cash rebates and great interest rates. While you are still likely to spend more than you would on a used car, you may spend much less than the first market price after negotiations, incentives, and rebates.

 

New cars offer peace of mind and ease of purchase. There is no need to take it to a mechanic before you buy, and if it breaks down, most warranties will cover the cost of repairs for the first few years of owning the car. Most warranties are based on mileage or years, whichever comes first, so be aware of the terms and conditions.

While new cars are expensive, they do offer a lot of the newest tech features for performance, safety, and comfort. Used cars are older and may not have the features you are looking for.

The major drawback to new cars, however, lies in depreciation. Basically, the value of the car drops dramatically as soon as it leaves the lot. In many cases, this value drop is as much as 20 percent! That means a $25,000 car will lose $5,000 in about two minutes as you drive it off the lot.

Leasing

A third option, rather than buying used or buying new, is to lease a new car.

The biggest benefit to leasing rather than buying is that you can get more car for your dollar. When you lease, you don’t pay on the full purchase price of the car, rather, you pay on the depreciation of the car. This means if you lease a $25,000 car for 3 years, and the anticipated value of the car at the end of the 3 years is $15,000, you only make payments on that $10,000 difference. If you had purchased the car, you would make payments on $25,000.

If you do not have a lot of money for a downpayment on a car, leasing can also be a beneficial options. When buying a car, it is good to put down 10-20 percent of the purchase price. Leasing, however, is often available with no money down or as little as $1,000 down.

The main benefit of leasing is obvious: you get to drive a brand new car every 3 years! The drawback, however, is that the money you are spending isn’t investing in an asset, it’s simply spending money. Like renting instead of buying, you are not purchasing any equity in an asset you can later sell.

Other considerations are mileage fees and potential damage to the vehicle. If the car is damaged or you drive it over the mileage limit, you may end up with hefty fees.

Leasing often costs more than buying in the long run, as you’ll probably keep driving a purchased car for longer than 3 years.

Financially, buying a reliable used car is typically the wisest option. However, buying or leasing a new car can have other benefits. Whichever you choose, be sure to budget wisely and leave room for unexpected repairs, maintenance, and other costs associated with operating a vehicle.

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Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.

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