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Buying a vehicle

We need to move around and few of us live in an area where we can walk or use public transportation, a mean of transport is a basic need, not a luxury. However, vehicles don’t come cheap. Not many are able to save enough to pay cash for their car and financing the purchase is usually the way to vehicle ownership. Ask yourself some questions before committing to buy.

Lease or buy?

Monthly payments in a lease are usually more moderate –because there is a residual value at the end of the lease period- than when you are buying, however, unless it will be a company car and there are huge tax deductions in leasing, I cannot see the financial advantage of it. When leasing a car, you spend years doing monthly payments to own nothing at the end. It feels as if you were paying someone else’s car loan.

In some places, dealers are not required to disclose all the figures, and seedy characters can sneak items into the contract you did not agreed to in the first place. Whatever option you choose, also enter the reputation of the dealer in your equation.

Leases tend to be expensive, with tortuous contracts and conditions. Often mileage is limited and charged extra if you exceed it. Be also prepared to pay for repairs, any dent or bruise will be on your purse.

Buying is probably the best solution. If you save as much as you can for a down payment and get pre-approved for a car loan –the lender will be your choice, not the dealer’s- before you start looking, you’ll probably be in better financial shape; after that, figure out the model and price you can afford. At least, when your payments finish, you’ll have something to show for your effort. Something you can trade in or sell to help financing the purchase of a new vehicle.

Keeping your vehicle for 10 years instead of the typical 3 will see you thousands the richer when you retire.

What kind of vehicle do you need?

The answer –for a family- is usually a car. Some will go for a truck, a van, or a vehicle that doubles as work tool. Motorcycles fall more under the hobby or luxury department; however, on occasion, a motorcycle might be a cheaper option to your transport problem -considering the weather is usually nice where you live, you don’t need it to do the school run or grocery shopping, and generally like riding a bike.

Do you really need that SUV when you live in a city with 300 days a year of sun and rough driving is not your kind of sport.

New or used?

A brand new vehicle is lovely from every point of view, with the exception of the financial one. Getting into a brand new car is tempting; however, considering a new vehicle drops in price the minute you pay for it, I would resist that temptation, or, at least, think carefully before giving in.

The price drop in a used car is much less.

That happens in any country. A friend on an expat move bought two cars -a new one for $21000 and a used one for $4000- to sell them four years later for $12000 and $2500, respectively.

You can buy directly from the owner or through a dealer. Buying directly from the owner can save you money, but I only recommend this option if you know the person and know how the car was cared for or you are a car expert yourself and able to assess the condition of a vehicle on the fly. Dealers have plenty of cars back from 2 or 3 years leases and offer good deals and extended guarantee in used cars –sorry, pre-owned is the term this days- and it might be a good option.

Line your financial options before negotiating prices. Financing through the dealer is bound to be more expensive. Save yourself a good deal of money negotiating your loan apart from the purchase and prior to start looking. You can even do some creative financing, like getting a home-equity loan, which will typically have a cheaper interest rate and, sometimes, you can write it off against taxes –the interest.