Get Behind the Wheel: What Are Your Options?

Podcast Transcription 

Money Talk is a podcast brought to you by PFCU where we will share tips and tricks and talk to the experts on all things finance related. Join us as we cover everything from credit and loans to cyber security and careers. No matter where you are in life, PFCU is here for you.

Hey everyone, welcome to another episode of PFCU's Money Talk podcast, I'm your host, Maddy. Back today with some more useful tips that you can use in your everyday life. In this episode, we're going to talk about buying a car. Making a large purchase like a car can be overwhelming and a bit scary. You want to make sure that you’re making the best decision that not only fits your lifestyle but also your budget. So, I want to give you a basic overview of the difference between buying a used vehicle, buying a new vehicle or leasing.

So, let's talk about buying a used car first. Buying a used car is appealing to a lot of us. Used cars are less expensive up-front, and they have an added benefit of not depreciating instantly, which I'm going to talk about more on that later. Sometimes buying a used car means saving up to 25-30%, which could mean some wiggle room in your budget and maybe expanding your choices.

If you do choose to buy a used car, there are some costs not typically associated with buying new so, these are important to know. For example, you’re going to want to have the car checked out by a trusted mechanic so that you're not surprised later with costly repairs that come up. You may need to do some maintenance work on the car much sooner than if you bought a new one. However, today’s cars can go longer between scheduled maintenance visits than they could in the past. It’s just one of those tradeoffs between buying used versus buying new.

But buying used also presents other financial benefits. Car insurance rates are often lower for used cars than for new ones, and registry renewals are often cheaper. This can save you hundreds or more over the life of the car and that’s definitely something to consider.

So, now let's move on to buying a new car. Buying a new car has some advantages and one major drawback.

First, the positives. You may be presented with more financing options and new-car incentives such as cash rebates and great interest rates. While you are still likely to spend more than you would on a used car, you may spend much less than the first market price after negotiations, incentives, and rebates, which is a good thing. There are also often benefits of buying from a new car dealer, such as service options or guarantees. Make sure to weigh these cost benefits against the cost of what you might get for a used car.

Also, new cars offer peace of mind and ease of purchase. There is no need to take it to a mechanic before you buy it, and if it breaks down, most warranties are going to cover the cost of the repairs for the first few years of owning the car. These warranties are usually based on mileage or years, whichever comes first, so just be aware of the terms and conditions before you sign.

 And while new cars are expensive, they do offer a lot of the newest tech features for performance, safety, and comfort. And used cars will likely be older and may not have the features you're looking for. So, before you go car shopping, it’s best to know what exactly you’re looking for and what’s most important to you.

Okay, here's the major drawback to new cars and it lies in the depreciation. Depreciation is when something loses value over time. Everything depreciates, but new cars suffer a big hit almost instantly. And you've probably heard this, so, basically, the value of the car drops dramatically as soon as it leaves the lot. In many cases, it drops by as much as 20%! That means if you were to buy a new car for $25,000, it would be worth up to $5,000 less the moment it became yours. That can definitely be painful.

Okay so, here's your third option, rather than buying used or buying new, you can lease.

The biggest benefit to leasing a new car rather than buying is that you can get more car for your dollar. When you lease, you don’t pay on the full purchase price of the car, rather, you pay on the depreciation of the car. That means if you lease a $25,000 car for 3 years, and the anticipated value of the car at the end of the 3 years is $15,000, you only make payments on that $10,000 difference. If you had purchased the new car, you would make payments on the $25,000.

If you do not have a lot of money for a downpayment on a car, leasing can always be a beneficial option. When buying a car, it's good to put down 10-20 percent of the purchase price. Leasing, however, is often available with no money down or as little as $1,000 down.

The main benefit of leasing, you get to drive a brand new car every few years. The drawback, however, is that the money you are spending isn’t investing in an asset, it’s simply just spending money. It's kind of like renting instead of buying, you're not purchasing any equity in an asset that you can later sell.

Other considerations would be mileage fees, potential damage to the vehicle. If the car is damaged or you drive it over the mileage limit, you may end up with hefty fees so make sure you understand all of those fees before you make the agreement. 

Leasing often costs more than buying in the long run, as you’ll probably keep driving a purchased car for longer than a few years.

So, what does all of this mean for you? Well, financially, buying a reliable used car is typically the wisest option. However, buying or leasing a new car can have other benefits. It’s important for you to know, before you start seriously car shopping, what your budget is. And don’t overlook other costs on top of that sticker price, things like insurance, gas and maintenance. And I would also recommend walking away, thinking about the purchase overnight and coming back the next day before signing on the dotted line. Buying a car is no small purchase and you want to make sure you’re not only making the best decision for what you need but that you’re not overstretching your budget, you want to make sure you're leaving room for anything unexpected that might come up.

Happy shopping! Thanks for listening. 

Money Talk is a podcast brought to you by PFCU. PFCU offers many products and services to fit your needs. From our various loan and account options to our team of financial coaches to help you reach your goals. Make sure to take advantage of the many conveniences PFCU offers, such as the mobile app, mobile wallets, bill pay, and more. Visit our website at pfcu4me.com to learn more. PFCU is an equal housing lender and is federally insured by the NCUA.