How to Buy a Car

Getting a new vehicle is a huge and fun step!  Once you have your sights set on a new car, it’s easy to look at the monthly payment and think, “Hey, no problem, I can do this and I’ll have a beautiful car!”  But, you have to think long term and remember that cars are a depreciable asset, not an investment!  Should you go for the lease, save up enough cash to pay for the car outright, or buy the car using a loan?  There is no one right answer for everybody, but I’ll explain some pros and cons of each and put them in order from least to most expensive.

Least Expensive: Save up and buy a car with cash

This could be a huge area of savings if you struggle with a budget or have a hard time funding your savings account.  If you go this route, consider a nicer used car or a less expensive new option.

Pros:
-No monthly payment or interest
-The car is all yours, outright and you don’t owe anybody anything
Cons:
-Using a chunk of your savings for a big purchase
-You may have to settle for a used car

More Expensive: Buy a car using a loan (aka financing)

Just like any other loan, some of the monthly payment is the principal and some is the interest. The higher the interest rate, the more your monthly payment will be.  Sooner or later, you end up owning the car when you completely repay the principal.  The reason I do not have this as the most expensive option is because you still own a car after everything is said and done.

Pros:
-You won’t deplete your savings account
-You own the car at the end of the loan, just like a mortgage on a house
Cons:
-You still need a down payment at the beginning
-Your monthly payments are generally higher than a lease payment

Most Expensive: Leasing a car

Think of it like renting an apartment.  You make a monthly payment and you get to use the car, but you have to give it back at the end of the lease. 

Pros:
-Some maintenance items are covered under the lease
-You can get some nice tax advantages if you are a business owner and use the car for work
Cons:
-You never own the car, so you can’t trade it in for your next vehicle or sell it
-Insurance on a leased car is generally more expensive than when you purchase a car

If you’re in the market for a car and want to talk through your options, please complete the contact form for a complimentary consultation!