There are two affordable options to get into a car without settling for an econo-box. The first is lease a new car and the second is to buy a used one, but which path is the better choice?
“Both options have their advantages,” says Randy Ellspermann, CFO of LightStream Lending. “If you have no need to drive a new car, then financing a used car will work well”, he says. “But sometimes the cost of financing may be a concern.”
While Ellspermann and Lightstream usually lend money to prospective car buyers, today he’s lending his expertise about these two methods of buying a car. Here’s the breakdown:
Leasing a New Car:
Leasing is a cheap way to get into a brand new car. What makes it particularly appealing is that you can usually lease a car without a down payment, minimizing the upfront costs, though doing so it may increase the monthly costs.
Additionally, service and maintenance are usually taken care of during the lease terms, so those are costs you don’t have to budget for.
Finally, those who use their car for business purposes and can write off quite a significant proportion of their monthly costs and in some cases the whole thing!
Leasing is a great option for someone who needs to be seen in a new car, but as a long-term solution it’s not ideal. “You pay more over time with a lease,” said Ellspermann. “Mainly because cars depreciate the most when they’re new.”
Another issue is that you don’t actually own the car after the lease terms, meaning you’ve built no equity. Each month all you’ve paid is vehicle’s depreciation during the lease term, plus interest charges, taxes, and fees.
See Also: Top 10 Reasons to Lease a Car
Furthermore, if you want to get out of a lease half-way through your term, it will likely cost you just as much as sitting through the whole term. At least with financing, you can sell the car and use the money earned from the sale to pay off the remaining costs.
At the end of your lease term you’ll have to pay for any “excessive” wear and tear of the vehicle in addition to extra miles outside of the lease agreement. Each extra mile can cost you anywhere between 10 to 30 cents, which can add up quickly.
After that you’ll have to buy or finance the purchase of the car or consider leasing or buying another vehicle.
Financing a Used Car:
Sure, getting financing for a used car isn’t as easy as just walking into a dealership, but it does present buyers a way of owning a car that’s as affordable as leasing a new car.
See Also: How to Finance a Used Car
“Be sure to do your homework first, get your financing rates before hand,” said Ellspermann. Rates at used car dealerships can be quite high, so look aggressively for the best rate you can.
Financing allows buyers to build equity with the vehicle, and at the end of the term you own the car. There are no restrictions to what you can do with the car in terms of customization and you can drive it as many miles as you’d like.
However, the usual issues that arise with used-car buying and ownership still apply here.
“You’re always taking a chance with a used car,” said Ellspermann. “You need to check out the record and be willing to tolerate higher repair costs.”
See Also: Tips for Buying a High Mileage Used Car
It would be wise to get a pre-purchase inspection and take a look at the maintenance and reliability history of any car you’re considering buying.
If you’re financing a used car, it’s wise to also have a budget set aside for maintenance and repairs, since older car tend to have more expensive repair costs.
Depending on the age and mileage of a car, it may still have some warranty coverage. Another option to ensure you’re protected from excess maintenance and repair costs is to get a certified pre-owned car, although they tend to be much more expensive than the usual used car.
See Also: Cash, Lease or Finance, Which is Best for you?
In terms of value, financing a used car always seems like the better deal. You get more when you financing a car, as opposed to leasing, which sees you getting less for your money. If there’s one advantage to leasing a car, it’s that you’ll have the newest, shiniest car on your block, guaranteed. Whether you buy or lease a car, make sure to prepare your garage by decluttering the space and inspecting the residential garage door.