Buying New vs. Leasing vs. Maintaining an older car (Cost Breakdown)
Introduction
After driving 3 brand new cars, one certified preowned car, one lease, and finally owning an older vehicle, I can tell you which option saves you much more money down the road and why. I know that my past car decisions were plain absurd as I applied for new car loans that I would trade-in eventually or signed up for leasing cars thinking this would save me money. However, those bad decisions taught me great money-saving lessons.
Buying New vs. Leasing vs. Maintaining an older car (Cost Break Down)
Owning a newer model means that you would not have to worry about repair bills as you would if you owned an older model with quite lot of miles on it. However, whether buying new, leasing, or maintaining an older car you always have some bill to pay. For instance, older and high miles cars deal with costly repair bills while newer cars deal with depreciation, high loan interests, and higher insurance rate. More details are provided below:
Buying New:
Most people love the smell of new cars; however, most people also regret buying the new car just a few hours after signing the contract and realizing how expensive the car actually is. New cars depreciate drastically in the first couple years. In addition, you still have to do regular maintenance on new cars just as you would with any other car. On top of that, most people apply for a loan to buy a new car and the interest rate for such car loans is usually high. To make the scenario worst, vehicle insurance for newer models tend to be more expensive compared to older models. Unless you also pay for gap insurance, in case of an accident the insurance would only pay what the car is worth, which tends be much lower than what you actually owe. You will end up paying the difference.
Leasing:
The good thing about leasing a car is that, depending on the lease agreement, you do not have to pay for any repairs or maintenance. Moreover, some leases give you the option to bundle insurance policy and lease payment in a single monthly payment.
Depreciation does not affect you. You may also return the car early or switch cars at any time; however, every lease contract is different and some leases are not flexible.
On the flip side, after several years of leasing cars you still do not own any car. For example, after two years of making car payments you could have paid half the loan already and the monthly payments would eventually stop. After those two years, the older car you were repairing could be already fully repaired and running good as new.On the other hand, you would continue to make monthly lease payments for as long as you want to drive.
Owning an older model:
Whether you currently own an older car with over 100k miles or plan to buy an used car with good miles, you should be concerned with ensuring the mechanical and cosmetic condition of the car is safe for driving. With that said, most well taken care of cars do not permanently "break down" after reaching a number of miles. Well taken care of cars can run for as long as you keep maintaining and repairing the car. Usually, the cost to keep an older car running over five years is much lower than what you could pay to drive a new car in one year.
Table 1 Cost comparison
In sum, what is the best option there is?
Best of both worlds: (buying certified car with low miles)
The best choice for the average person looking to buy a car is to purchase a certified pre-owned vehicle with low miles on it (usually 20k-40k is a good number) and pay for it with cash (or check, or debit, just avoid car loans). The make sure you get the most out of every dollar you pay for the car, drive it for several years after paying it off. The more time you drive it, the less the car would cost you.
In addition, when purchasing an older car with high miles on it you are risking that the car might be for sale due to major issues. Usually, you cannot verify if the car has been well taken care of or abused.
Moreover, the moment you drive the brand new car off the lot the car already lost value and begins to depreciate very very fast. By the way, the car loan will last for several years but the new car smell will not last very long after everyday use.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
