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Buy or Lease a Car? Forget about it!
By Jack Sterling | November 1, 2007
Starting with a home, for many individuals their next highest cost purchase is a car. An oft asked question is: should I take a loan to buy it, or shoud I lease my vehicle? Generally speaking, if your motivations are primarily fiscal, leasing is hardly ever the better choice. The details of why this is so can be found in any one of many articles on the topic. But, if the vehicle you are buying is to be used for commuting from home to work, it seems people are forgetting a third and very important option: Paying cash.
Learn from my experience. I have leased and I have financed new cars. It took me years of trial and error, before I sat down and did the math and got this issue into perspective. What you must realize if you are going to do the right thing for yourself is that vehicles are some of the worst kind of depreciating assets. And unless you are using the vehicle as a direct tool in the operation of a business to turn a profit, then you should do everything you can to avoid using a debt instrument to obtain one.
I think everyone should achieve the ability to drive a nice modern car. I paid cash for my last car. But, I bought it used (just a year old - the greatest depreciation comes in the first year). And, it took time for me to be able to do that. Now, I realize no one wants to drive around in an old “rust bucket.” Besides, the repair costs of a used-up old car could rival a lease payment – as well the hassle due to the loss of use of the vehicle while it is in the shop.
So, what I recommend is to choose a used car very judiciously. One thing that’s very helpful in buying used is that information about the reliability of various model years of cars manufactured ten years ago is readily available. And then considering, that at the time of this writing, Kelley’s Blue Book reports that one should be able to buy a 1997 Honda Civic for just over $4,000 — save your money and buy one of these as soon as possible! Drive it for 5 years, while in the meantime putting what you would pay for a car payment into the bank. At the end of five years, buy a new one for cash! No more car payments and no more interest: Most judicious!
Topics: Finances |
November 4th, 2007 at 5:35 am
Very true, what persons do not understand is the extra money dealers make off the actual financing of the car. F & I managers keep “points” Basically, they keep a certian percentage of the interest rate charged to the consumer. They act as a broker of sorts. Although, it is not unethical to do so. ( They are finding you financing. They shouldn’t be doing it for free ) It will save you over paying cash. Also, beware of used car warranties, much mark up with litle likelyhood a claim will be paid. There are some good ones, but look out, check closely, call your Attorney Generals office or BBB for possible complaints filed