For most of us, purchasing a vehicle is one of the first major financial decisions we make in our lives. With so many vehicle choices and financing options, it’s easy to become overwhelmed with the entire process. It’s also very easy to make a mistake, which can cost you a lot of time and money in the long run. Here are a few common myths and considerations to keep in mind as you begin shopping for your next vehicle.
Myth #1: Leasing is always the best option.
When you purchase a new car, you really have two main options, “leasing” or “buying”. Leasing a vehicle is similar to renting an apartment. You often can get more for your money (upfront), have less to worry about when it comes to repairs, and aren’t required to make a large down payment. Plus, with a lease, you are able to get a new car every 2 or 3 years, when your lease is up. On the flip side, there are some important negatives to keep in mind as well.
When you lease a vehicle, you aren’t building any “equity” in the vehicle with your payments. When you are making payments on a car you “own”, a portion of each payment goes toward the principal – thus reducing the amount of money that you owe on the vehicle. If you keep a “purchased” vehicle the entire term of your auto loan, you will eventually own it “free and clear”. At this point, you can choose to keep the vehicle (without a monthly payment), sell it, or trade it in on your next vehicle purchase. When you keep a leased vehicle until the end of the term, you then have to pay to buy out the vehicle, purchase a different vehicle, or begin another lease. Leases also often come with “mileage restrictions”, which limit the amount of miles you can drive your vehicle in a given year. If you go over the predetermined mileage limit, your lease rate may go up, or you’ll be stuck paying mileage penalties.
If you feel a strong need to have a new car every few years, and don’t intend on putting a substantial amount of miles on the odometer, leasing may be a good option for you. When looking at it from the standpoint of making the best, financially responsible decision, purchasing a vehicle is a much better idea. You have fewer restrictions and more options available at the end of your term as opposed to leasing.
Myth #2: Buying a new vehicle is always the way to go.
What’s not to like about purchasing a brand new car? It’s shiny, in tip-top mechanical shape (with a warranty), and it smells GREAT! Well… it also depreciates in value by as much as 20% as soon as you drive it off of the lot. So, if you paid $30,000 for a new vehicle, by the time you get home, it’s probably worth close to $24,000 instead. If you plan on keeping the vehicle for more than a few years, and all of the new car benefits mentioned above are important to you, there’s really nothing wrong with purchasing a brand new vehicle. But, if you are concerned about vehicle depreciation and would prefer to get “more bang for your buck,” you should consider shopping for a gently used vehicle instead. When you purchase a two to three-year-old vehicle, it’s probably still in very good shape aesthetically and mechanically, and someone other than you took that initial 20% depreciation hit. Plus, it might even still have a little bit of that “new car smell” left!
Myth #3: It’s better to just finance your vehicle at the dealership.
Purchasing a vehicle can be an exciting process, but it can also be exhausting. After finally finding a car that you love, you might be tempted to sign the paperwork as quickly as possible, just so you can finally be done with the ordeal. Many times, this involves letting the dealership handle the financing, extended warranties, additional insurance, and so on. It’s not that dealerships are inherently bad, but it’s important to be prepared and educated regarding the financing options available to you. The best way to do this is to get pre-approved for a vehicle loan at your credit union before you even begin the shopping process. You’ll have a better understanding of what you can afford, the terms involved, and additional warranty and coverage options available to you. By taking just a few moments to visit with a credit union loan officer, you’ll be able to save a substantial amount of money, time and frustration