Should I buy or lease?
What are the perks of leasing? Lower monthly payments, a fresh new car every few years, and maintenance handled by the owner. Now you might be thinking, why would anyone buy a car? The car owner that is leasing to you has to make money somehow, otherwise, they would go out of business pretty quickly! Signing a lease incurs fees that you will pay for every lease you enter. Over the long term, leasing will cost you more money because of these fees. The optimum "bang for your buck" would be to buy a slightly used car to avoid the initial depreciation cost of a new car (~25% per year for new cars vs ~15% for used) and drive it as long as possible after you are done with your payments.
How much should my down payment be?
The best answer here is to pay off the whole cost of the vehicle and not to finance a liability (a car only costs money and does not provide an income). However, this is probably not practical to save for months to buy a car in cash. For the minimum down payment, you should aim for no less than 10% of the total cost of used cars and at least 20% on new cars. This is to show your lender that you are motivated to pay them back and will be more likely to be approved for the loan. The benefit to you will be lower total interest paid and might also result in a lower interest rate! A lower interest rate will mean a lower monthly payment. Not being able to put down the recommended down payment could be a sign that you are looking at a vehicle that is outside of your budget as well. Consider waiting until you save up more money, look for a cheaper car, or remove some of the add ons that the dealer might be pushing on you.
- Extended Warranties
- Delivery Fees
- Paint and Fabric Protection
- Key Protection
- Anti-Theft Window Etching
- Gap Coverage
- Windshield, Tire & Wheel, or Dent Protection
- Tire and Wheel Packages
- Maintenance Packages
Long-term cost of owning a car
When deciding to buy a car, we usually just consider the impact the monthly payment will have on our budget. If you are not taking the hidden long term expenses into account, you can quickly blow your budget and get stuck with a car you cannot afford!
What is a long-term expense? These are things like regular oil change, new tires, and inevitable repairs. These also overlap with the initial hidden costs mentioned above when it comes to annual registration and insurance. While all of these expenses are unavoidable, they can be planned for! Having your car break down and needing a new transmission or replacing all of your tires can be devastating! Repair shops will take advantage of this vulnerability by offering extremely high-interest credit cards (30% or more) regardless of your credit. How do you avoid this? Build these expenses into your monthly budget! Since these expenses will be few and far between, you might as well earn interest on this money. Setting up a savings account or investing (liquid assets so you can withdraw quickly) the money you put aside each month is a way to squeeze out a little extra value from your hard-earned money while reducing your vulnerability to unexpected expenses!