The Pros and Cons of Purchasing a New Car!
So, you’ve been working at your new job for a few months now and have saved up a nice downpayment for that new car you’ve been hoping to buy but your friends and family insist that you don’t buy one that’s brand new. Ask 10 different people that you trust and they will give you 10 different perspectives on the right and wrong way to buy a car. It' clear that there is no “one size fits all” answer to the question of “Can or Should I buy a new car?” What are you going to do?
Let’s get into it and explore some of the realities at play! I find it helpful to explore some of the various options through the pros and cons of different scenarios: Lets explore the follow four common scenarios:
1. Buy a brand-new car from your local dealership.
2. Lease a brand-new car from your local dealership.
3. Buy a lightly used car.
4. Buy a “junk” car to help you continue saving until you become a millionaire.
There are benefits and drawbacks to each option. Let’s walk through some of them together:
Option 1, a brand-new car:
Benefits:
A new car should need little to no maintenance for a good long while.
It’s fun to buy a new car!
Drawbacks:
Cost - this option usually has the highest upfront costs of all options we are discussing.
A brand-new car can be $5,000, $10,000, or even more expensive than a lightly used equivalent car. As soon as you drive that new car off the lot, it is already worth a good bit less then it was the minute you bought it.
Option 2, Lease a new car:
Benefits:
Generally, a lower upfront cost
Generally, includes a maintenance plan (if done through a dealer).
Leasing usually allows you to start using a car that is more expensive than one you would generally be able to afford
Drawbacks:
Leasing a car is much like renting one. Therefore, once your lease is up you will have to either
- Pay to purchase the car you had leased,
- purchase another car, or
- start another lease.
Conversely related to how fun it can be to own a new car, it can often feel less exciting to lease a car that you don’t actually own.
Since perpetually leasing does not ever result in car ownership, the long run impacts to your budget can start to pile up.
Option 3, Buy a lightly used car (25k - 60k miles)
Benefits:
Generally cheaper than a new car (as mentioned earlier, you can buy a relatively new car with less than 50k miles on it and immediately save several thousand dollars, which can be a meaningful portion of the overall cost of the vehicle.
Lightly used vehicles usually still need minimal maintenance, if you go with a reliable car sales company, you should get quite a few miles out of your new car before having to deal with any big maintenance issues.
A dealer should clean and present the car in top condition, hopefully providing a similar “brand new” feeling when you drive it off the lot.
Drawbacks:
Upfront costs can still be pretty high, while still being less than a brand-new car.
If you don’t plan well and stick to your plan, you can still end up spending a lot of money on a lightly used car.
Option 4, buy an old car (150k - 200k miles)
Benefits:
Cheapest option, likely relatively small upfront cost (potentially even giving you the ability to pay for the entire car in full on the purchase date, avoiding monthly payments entirely).
This allows for you to have some extra breathing room in your budget and focus on saving money.
Drawbacks:
Expect high maintenance cost can be expected as older cars often need more (and more significant) repairs.
Driving an older car may not be as fun as driving a new one.
So now that we have walked through these four scenarios and some of their benefits and drawbacks, I will leave it for you to decide the path forward? Ultimately that decision depends on your current financial situation and what you are looking to get from your vehicle. One of the most important thing to keep in mind is ensuring that you buy something you can afford. It is best to always ensure that any monthly payments you sign up for will fit into your budget, remembering to always account for your savings in that process.
Remember, as always, if you have any questions about this or other financial topics impacting your life today, don’t hesitate to reach out to us.