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SHOULD
YOU FINANCE OR LEASE YOUR CAR |
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TAKING
ON A NEW CAR OR TRUCK
- Beware of depreciation
(which can vary by car).
- How depreciation
works?
A car loses about 15-20
percent of its value each year.
For example:
- Let's start with
a 1-year old used car worth
$15,000 that loses 15% of its value
each year.
- At 2 years old,
the car value is worth $12,750 (85%
of $15,000).
- At 3 years old,
the car value is worth $10,838 (85%
of $12,750).
- So what is the value
of a new car?
You can lose thousands once
your drive your new car off the dealer's
lot. Why?
Because the price you
paid for the car is the retail price
(not counting the taxes and licensing
that are sunk costs). If you drove that
new car back to the dealer, the
most the dealer will pay is the wholesale
price (the same price he would
pay the manufacturer).
So your value drops
instantly from the retail price to the
wholesale price once you take possession.
That drop could be in the thousands depending
on the type of car and model.
- So why not buy used?
You will be paying for the market
value of the car instead of dealer markup.
Some 1 year-old cars are great values
that can save you thousands
in financing costs. Get the facts:
http://www.carfax.com/
Kelley Blue
Book
Some places to look
for used cars:
see our "finding
a car section"
Should you lease
your car to reduce costs?
- Leasing is simply
a 3-yr or more rental agreement.
You are renting the car for a period of
time that you will return at the end of
your leasing agreement.
The advantage of leasing is that the
monthly payments are significantly lower
than financing.
The disadvantage of leasing is that you
will not be building any equity value.
You don't own anything.
The financial advantages
and disadvantages of leasing will
vary by person and circumstances.
- If you are a person
who must drive a new car every 1-3 years,
then leasing may be your best financial
option.
- If you are a person
who likes to replace your car every
5 years, then either leasing
or financing will be your best financial
option.
- If you a person
who likes to drive the same car for
7 or more years, then financing
would be your best option.
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 Financing
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Financing
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