5 Things to Consider When Buying or Leasing a New Car


Buying or leasing a new car can be stressful. The decision you make will impact your finances for several years to come, and you want to make sure that you make the best decision possible. Here are some tips to help you make an informed decision when purchasing or leasing your next vehicle.

Financing vs. Leasing

This comes down to a personal choice. If you do not care about having the latest model every few years, then financing may be right for you. The longer you keep the vehicle after you’ve paid it off, the longer you can save by not having a monthly car payment. However, the longer you keep the vehicle, the more likely that you’ll have increased maintenance expenses, so it comes down to determining if the expense of maintain the vehicle is less than the cost of financing a newer one.

Those that prefer always driving a later model vehicle and do not want to worry about expensive vehicle maintenance, would most likely want to lease instead. However, you must consider how many miles per year you drive, since leases typically have a limited amount of miles included, and going over the limit can be costly.

Consider a Certified Pre-Owned

Vehicles lose their value immediately after they’re driven off the lot, so imagine how much value they’ll lose three years later. This is good news for those that do not mind having a vehicle that is a few years old. By purchasing a Certified-Preowned vehicle, you can take advantage of significant savings. The vehicle will most likely have low mileage and still have a few years left on the manufacturer’s warranty, and you can also purchase an extended warranty to cover the entire period that you are financing the vehicle, giving you peace of mind. By purchasing a Certified-Preowned, you’ll have a lower car payment than if you purchase a brand new vehicle, and the vehicle might still look the same as the newer model, since most auto manufacturers do not change the way the car looks for several years at a time.

Trading in an Old Vehicle vs. Selling It to a Private Party

It is likely that you’ll get a higher value for your old car if you sell it on your own instead of trading it in to a dealer. However, you have several things to consider. If you decide to sell it on your own, you have to advertise the vehicle, spend time meeting with potential buyers and letting strangers drive your car, since most people will want to test drive it before making a decision to buy. This creates a liability for you from an insurance standpoint. On the other hand, if you trade it in to a dealer you won’t have to worry about the hassle of selling the vehicle on your own. Also, you do not pay sales tax for the value received on your trade-in. For example, if you purchase a $30,000 vehicle and receive $10,000 value from your old trade-in, then you only pay sales tax on $20,000. So you must consider the sales tax savings versus the difference of the trade-in value and what you can sell the car for in the private market in order to see if you’re truly getting  a benefit.

Financing with the Dealer vs. Financing with Your Own Lender

If you decide to finance a vehicle you can either get your own financing or go with dealer financing. I recommend that you shop around with your own lenders to see what you can get on your own. By doing so, you can then use that as a bargaining chip with the dealer. If the dealer offers you a better rate than you can get on your own, then great, if not, then you go with your own lender or use the fact that you have outside financing as a way to get the dealer to offer you more favorable terms on the financing, price of the vehicle, etc.

Gap Insurance

Whether you buy or lease, be sure to ask the dealer if the vehicle comes with gap insurance. Gap insurance covers the “gap” between the vehicle’s value and what you owe on it in case of total loss or theft. For example, if your new car is totaled in an accident and the value of it as determined by the insurance company is $20,000 but you still owe $25,000 on it, you might be on the hook for the $5,000 difference. Gap insurance covers that difference. Most leases come with gap insurance, but be sure to ask. Some dealers offer it as an add-on, but be sure to inquire with your current insurance carrier as well, since that might be a cheaper option.

For more car buying tips, be sure to listen to Episode 001 of my podcast, where I interview an auto industry expert who talks about the above covered topics and more.

Have a Question?

Send me an email at Luis@onmywaytowealth.com and let’s get started on pursuing your financial goals together. To get bi-monthly financial tips for Gen Xers sign up for my newsletter and subscribe to the podcast.