“But if I buy it, it’s mine…I own it!” Sounds familiar, right? Except for one thing; an automobile is the only asset whose depreciation we accept! If your home (barring acts of God and banking) dropped in value, would you be OK with that? Yet, we’re good with cars…But what to do? Guy’s gotta drive, right? Absolutely, only there are smarter ways to go about it. Unless you pay cash for a solid used car (highly recommended), we’re always going to have a car payment of some kind.
Let’s start with the simple part first. Leasing a car can be less expensive alternative to buying a car. There are some stipulations. Most leases come with yearly limits on their contracts, usually between 12,000 and 18,000 miles a year, although you can buy “mileage packages.” In a three year term, any miles over that limit gets charged roughly 25-30 cents a mile when you turn the car in. Sometimes, the dealer may give you a break if you decide to buy the car, which you can do for the market, or Kelly Blue Book, price, depending on how good your negotiating skills are. Go get ‘em! You’re not getting the invite to Thanksgiving dinner anyway.
It is highly recommended that your commute should be miniscule; when I lived in Los Angeles, I averaged 40-50,000 miles a year doing things that most folks do. Depending on where you live and how far you drive to work, a lease may be an excellent option. The money due at the lease signing can be lower than a down payment, or even waived with excellent credit. Moreover, you can get a snazzier car than you’d buy for yourself. Last year, a friend of mine successfully traded in his Navigator for a four year lease on an insane Maserati and his monthly payment is $50 less a month. He does work from home, though. So there’s that.
It is amazing how much the new car drops in value as soon as you hit the street, off of the showroom floor. A good rule of thumb in owning is buying a car that’s a couple of years old, with roughly 20-30,000 miles on it. Many brands offer “Certified Pre-Owned” cars that can be great deals. Beware that interest on used cars can sometimes be higher so you have to do the math; will the one or two points on the loan outweigh the $30,000 I just saved on this BMW?
— ChicagoAutoAppraisal (@CAautoappraiser) July 18, 2017
In buying new, you have to really know the resale value. The chances are good that you’ll sell it and you want to get as much back as you can. If you compare a two year old used car to the newer model, how much more is the new car? Say you look at a 2015 Nissan Pathfinder S at roughly $20,000 with 24,000 miles on it. The 2017 version is roughly $30,000. You do save $10,000! Remember what I said about loans being more on used cars? Say that you’re paying an extra $80 a month because you’re paying 2% more on the loan? Well, $80 a month more, multiplied by five years is $4,800 more so you still save $5,200! Plus, the used $20,000 car can be sold for around $15,000 with 10,000 more miles. If you pay $30,000 guess what you can sell it for? Right…
Final point here, when you’re ready to sell; don’t trade it in. Sell it yourself, or find a car broker. Dealers will not give you Kelly Blue Book.
Don’t get crazy…
I’m a fan of cars and I get that you want what you want, but know what you want! For example, the Lexus RX350 is the exact same car as the Nissan Rogue…exactly. The interior is a tad more fancy pants but it’s the same body, windows…even the sport packages are the same! What’s not the same is the $50,000 price tag compared to roughly $30,000 for the Rogue with the exact same options. Why pay $20, 000 for an “L?” I’ll sell you an “L” for $300! Oh, and they’re both made by Nissan. Maybe I shouldn’t say these things but they forgot to invite me over for Thanksgiving…
Figure out what your needs are, then figure out the best options to meet those needs. In the end, it’s a decision you have to make for yourself, but remember that every decision comes with consequences — and when money is on the line, those consequences can affect your for the rest of your life. So choose wisely!