Over the past two years, my husband and I have bought two new (used) cars. They were new to us, but both used. From leasing and buying to family use requirements, here are the financial items we considered.
New vs. Used
We always have bought used cars, because they are more economical than new. Even with no-interest financing, we found that it was cheaper to finance a used car with interest vs. a new car without interest. For example, we bought a 2010 Ford Edge in 2012 for $24,000 and got a five-year car loan just under 3 percent with a payment of $310/month. The same car, new, was going for $40,000, making a five-year, interest-free loan $666/month.
Trade-In vs. Private Selling
When we bought our Ford Edge, we sold our previous car. We didn’t have a payment on that car, so we could look into the option of selling to a private party, such as through a company like cars.com. However, when we looked into the options, while we may have gotten a little more by selling to a private party, we would loss the tax benefits of the trade-in. For example, our 2006 Mercury Milan would have sold to a private party for $7,500, but we sold it to the dealer that we bought our new car from for $7,000, allowing us to write off that amount from the purchase of our new car. At a tax rate of 7.5% we saved $525, which only is a $25 savings, but also gave us the benefit of an easy transaction.
One of my biggest regrets is not thinking long-term about our auto purchase. When we bought our Ford Edge, we did not have any children. However, as our family has expanded, we realize we may need a full-size SUV verses a mid-size SUV. We want to have the car paid off before we buy a new one, and will now have to wait a few years before we can buy something bigger. If we had slightly extended our budget, we could have purchased a full-size SUV and not had to consider getting something bigger so soon.
Make Extra Payments
Our car payment was just under $310, it was $306.59 to be exact. We rounded our payments up to $310 and just kept making the higher payment. While it doesn’t sound like much, with an auto loan that recalculates each month to lower your payment and keep the term the same, that extra payment can really make a difference. For example, while we still make the $310 payment, our currently monthly payment only is $215, just two years later. We could lower our payment to the new amount, or keep paying the higher, original amount and pay off our loan several months before it was due, saving a lot of money on interest.
Buy vs. Lease
While we currently own both of our cars, we plan to lease one of our next cars. Most likely, my next car will be purchased and will be a long-term investment. We will buy the full-size SUV we should have originally bought, and then drive it until it dies. This car will be our family car and will be driven the most, and hopefully will last years beyond when our payment is completed. We most likely will lease my husband’s new car, which will not be driven as much. By leasing this one car, we can have a lower payment while still getting a relatively new car every few years.