Why Buy a Used Car
Buying a used car is generally less expensive than buying a new car. The main
reason is that when you buy a used car, the used car price reflects depreciation minus the
new car price. As soon as a new car is driven off a dealers lot the value of the car goes
down a lot because of depreciation. In general, cars are assets that depreciate in value.
Most of the depreciation of a cars value occurs in the first 1 to 3 years of a cars life. Thus,
when you buy a used car you don’t have to worry as much about the value of the car
depreciating as much right after you buy it. Dealers charge more for a used car than if
you were to buy a car for the general public because they add on fees, expenses and
commission to the sale price.
Less Control “Choice”
A disadvantage of buying a used car is that you will have lees choice on the
features and options that come with the car. When you buy a new car you have control
over the options you want on your car. You can choose the colors, package etc.
When you buy a used car you can’t really change the features of the car.
Have a Mechanic Inspect the car
Have an independent mechanic inspect the car before you buy it. Especially if the
car is no longer under warranty. Some dealers offer limited warranties on used cars. Be
aware of State “lemon laws” they may not include used car sales. Check to see if the
dealer has a 1 to 3 day return policy.
Do Your Homework
Buying a car is a major decision, so do your homework. Check local newspapers,
call dealers and check the Internet for a fair price for the car in your area. Some good
web sites are:
www.kbb.com (This site has info about prices for trade-ins and retail values for new
and used cars.)
www.autotrader.com (This site lists used cars for sale in your area and across the
www.edmunds.com (This site has more price information for new cars dealer costs
and general car buying information.)
Why Buying is Better than Leasing
There are many reasons that one would be more inclined to buy rather than lease. The
following is a brief synopsis of the major benefits that accompany buying a car.
1) You want ownership for your money.
Depending on the type of car you buy, you monthly payments could be a
significant chunk of your monthly income. For many people a car can be one of
the biggest investments thus far in their life. For this reason, people can be fairly
protective of their car. Not only that, but they want to own the car that they are
putting so much money into. There is a certain sense of pride that accompanies
ownership and people want to have pride in their automobile. Buying a car
provides that pride of ownership. Leasing a car is much like renting a car for a
few months. You will pay the same large monthly payments but you will not be
gaining any equity in your investment. After a set amount of time, usually a few
years, you will be forced to relinquish the car and any rights to ownership that you
once had. Many people are uncomfortable with paying such a significant portion
of their income toward something that they will not have any equity or rights of
2) You put a fair amount of miles on your car.
A vast majority of leases allow you a set number of miles to use during your lease
period. You are charged by the mile for anything over your allotted number of
miles. Mileage charges can be quite expensive if you are not careful. If you drive
a lot there is a good possibility that you will go over your allotted number of miles
and be stuck with significant fines. Leases are generally a bad idea for people who
know they will be driving a lot. Leases are also a bad idea for those who seem to
inflict abnormal wear and tear on their cars. Buying is a better option for those
type of people. Leases allow for normal wear and tear on the automobile but you
are charged for anything above that. If you know that you are hard on automobiles
you drive it is a good idea to buy rather than lease.
3) Finances are not stable.
Buying rather than leasing is suggested for those with unstable finances. Leases
can become quite expensive and are generally not the most industrious use of
funds. If your finances are tight or unstable it is a good idea to buy a reasonable
car rather than get locked into an expensive lease that could drown you in the
4) You want to modify your car.
Many people these days like the idea of modifying their car. Weather it be an
upgraded sound system, paint detailing, a better security system, or window
tinting. There are many changes that people make to cars. If you are interesting in
any car modification you will want to purchase a car rather than lease. Leases are
very controlling as far as what they will let you do to the car. The only way to
truly modify and personalize a car is to purchase it and then make the changes.
5) Your car depreciates quickly and you are concerned about depreciation
expense. All cars depreciate during the first few years of their life. Some,
however, depreciate more quickly than others. Leases are set up in such a way so
as to make to leaser pay all the depreciation expenses. The car is returned to the
dealership after the lease is up in good condition and with all depreciation
expenses covered. The dealership will then sell the car to someone who will enjoy
a car that is in good condition and that is no longer experiencing rapid
depreciation. If, on the other hand, you choose to buy the car, you will also own
the car during the years that it does not depreciate rapidly. Dealing with a car that
depreciates rapidly during the beginning years will not be as difficult if you are
also able to enjoy the later years during which depreciation is more stable.
Buying, not leasing, will allow you to do so.
6) You are not concerned about always having a new car.
Some people are intent on always driving a nice, new car. Others, however, are
more practical. If you are not intent on having a new car every few years buying
is definitely the best choice for you. If you do chose to buy, you can keep you car
running like new simply by taking proper car of it. A five year-old car can run
like new if you treat it well. This way you still have the luxury of driving a car
that runs like new without having to deal with the costs of leasing.
Why Leasing is Better Than Buying
Good if you like new cars every few years
Drive less than 15,000 miles per year
Don’t have enough money for down payment
Don’t want to deal with maintenance costs
Closed-end vs. Open-end
The monthly payments are divided up into 2 parts. The first part is the monthly
depreciation charge, which is determined by the amount of the vehicle's depreciation over
the period of the lease divided by the number of months in the lease contract. The second
part of the payment is the rent charge, which is you basically paying the car dealership to
drive that car for that month.
A bad part about leasing is that if you are a student and are graduating soon, you can get
charged for ending the lease early. If you graduate and need to move to your new job
location, your lease might not allow for moving and will charge you extra.
Closed-end leases are the most common and you only have to pay what you agreed to in
the beginning. The closed-end agreement has you pay the renting fee plus the amount of
depreciation that the car will have when you return the car to the dealer.
Open-end leases require you to pay the amount of depreciation per month as agreed to in
the contract, the renting fee, and also any extra depreciation that might have occurred
while you drove the car. Even though the depreciation wasn't included in the contract,
you are still responsible for it and must pay it to the dealer when you return the car.
Buying a Car Verses Investing the Payment
Buying a New Toyota Land Invest the Monthly Payment
Cruiser (This is the real cost of the car after 5 years
and 30 years.)
Interest Rate= 7.5%
Payment/month= $ 936.97.00
Years = 5 years
Interest = 12%
Payments = $ 936.97/month
FV after 5 years = $ 76,522.00
With $15,000 Down Payment
FV after 30 years= $ 1,300,878
*No additional Investment after
Price = $ 31,760.00
Interest Rate = 7.5%
Years = 5 years
Payments = $ 636.00
Buy and Invest at the Same Time
Less Expensive Car Invested Money
Price = $ 23,000.00 Payment = $ 476.00
Interest = 7.5 % Interest = 12%
Years = 5 years Years = 5 years
Payment = $ 460.00 Future Value = $ 38,875.00
Land Cruiser Payment = $ 936.00 After 30 years = $ 660,877
Less Expensive Car = $ 460.00 * No Additional Payment
Money to Invest = $476.00
After 30 years $ 1, 663,603
* Continued monthly payment