Not sure whether to lease or buy? Should you look for a new or used car? Does it make sense to consider a hybrid or electric vehicle? The road to your perfect car is paved with questions like these. To begin answering them, consider how you’ll use your car, how long you’ll want to keep it, and, of course, what you can most comfortably afford in terms of payments, maintenance, repairs, and insurance.
Here’s a list of questions to consider as you peruse your options. One answer will lead to another and soon you’ll be in the driver’s seat, feeling confident you’ve made the right choice.
There’s no question this is the place to start. The costs associated with a new car can add up very quickly. Beyond the purchase price, you need to factor in insurance premiums, registration fees, interest if you’re financing as well as regular maintenance, repairs, and gas. Whether you will use your car for work can factor in here as you may be able to write off a percentage of your car expenses as well as the depreciation in the car’s value (if you buy) on your taxes. How and how much you use your car may also factor into how much you pay for insurance.
Lease or Buy?
This choice has a lot to do with how much you can spend upfront and monthly, how much and how far you plan to drive your car, and how long you want to keep it. Buying generally involves either a major one-time payment or higher monthly costs if you finance your purchase. Leasing generally requires relatively little or even no money down and lower monthly payments. Problem is, the payments never end. In recent years, low-interest rates make financing a purchase cheaper but have also carried over into lease contracts, which also helps moderate their cost. Interest rates are a critical part of the economics of leasing because at the end of the day a lease is another way to finance a car.
Loan payments are usually higher than lease payments because you’re paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees. Lease payments are almost always lower than loan payments because you’re paying only for the vehicle’s depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees.
Another big factor to consider in leasing trends is the relatively low mileage allowance in some new leases: 10,000 miles per year instead of the customary 12,000 to 15,000 miles. That may be fine if you are only using your car to commute to the train station or for local errands. But if you plan to drive more frequently or farther, these leases may not be for you.
Lease terms are also varying a bit more than in the past; some leases are now offering terms of less than 36 months, which is a mixed blessing. If you don’t want to be locked into a long contract and feel you may want a new car in a couple of years, great. But you may end up paying more per month and you don’t own anything in the end.
New or Used?
New cars feel and (famously) smell great. At least for the first few years, repairs won’t likely be an issue and maintenance will be minimal. If you’re buying rather than leasing, you’ll want to consider that the value of a new car dips considerably the moment you drive it off the lot. Used cars can offer greater value, but you need to consider your tolerance for repair costs, especially if you plan to buy it outright and hang on to it for a long time. If you’re looking for the lowest possible monthly costs for a nice, late-model car, consider leasing a slightly used, “pre-owned” vehicle.
If you’re single and not planning any off-road adventures with a carload full of friends, do you really need a full-size SUV? Maybe you’re into antiques or own a big dog? Might a cross-over, wagon or hatchback suffice? Be practical about your choice. Obviously, if you have a big dog or a big family, don’t get a compact sports car. Also, don’t buy a big car just because you’re going camping once this year. That’s wasting a lot of money on fuel for the rest of the year. Of course, you want to be comfortable and feel safe and safety is one good reason to go for a heavier vehicle that rides higher off the road. But before you go big (or small) get real. Consider how you will actually use your car (or truck) and what you’ll spend on gas and maintenance.
Today’s new (and used) car market offers a wider variety of hybrid, plug-in hybrid, and all-electric vehicles (aka EVs) that can be cheaper to fuel and more environmentally friendly.
Hybrid cars are basically a combination of internal combustion engine vehicles (ICEs) and chargeable electric cars. They feature both a traditional engine fueled by gasoline and rechargeable battery functionality. Hybrids receive power from either both engine types for optimized power or solely one, depending on the driving style of the user. There are two main types of hybrids: standard hybrids and plug-in hybrids (PHEVs). Overall, hybrids cost more than ICE-only cars in terms of both purchase price and repairs and lack full-EV functionality. Great for local driving, most hybrids only use gas for faster, longer drives, and are often very affordable in combined terms of fuel efficiency and price. Due to the complexity of electrical parts, hybrids remain more expensive than traditional vehicles of the same size and often have a reduced power output.
Plug-in hybrids have the capacity to charge at electric-vehicle charging stations. Though they still have ICEs and use regenerative braking for battery power, they can drive longer distances powered exclusively by an electric motor. They also have a larger battery pack compared to standard hybrids, making them heavier but allowing them to use electrical power to greater advantage and overall driving range. In general, hybrids present all of the maintenance issues that ICE car owners face in addition to the risk of battery replacement costs. They can be more cost-effective when it comes to gas prices but have similar maintenance costs to traditional cars.
EVs are powered by a large battery with at least one electric drive motor wired for power and a complex software system to manage the battery. They are less mechanically complex than ICEs but more complicated in battery design. EVs have a higher fully electric power range than plug-ins but don’t have the extended gas-powered range. On the plus side, EVs offer relatively low maintenance costs due to structural simplicity, a nearly silent drive, cheap electric fueling options (including in-home charging), and zero emissions. On the downside, they are still a work in progress, pricey, and limited in range with long charging times.
If you choose a hybrid or EV, you’ll likely enjoy some tax benefits and rebates, but the total savings amount varies between states and localities.
How Much Will It Cost to Insure?
Which car you buy will, at least to some degree, impact how much you’ll pay for insurance. In addition to your personal driving record, everything about the car you choose—including the year, make, model, and risk of theft—affects the rate you might pay. These are factors to bear in mind as you choose the car that’s right for you.
The age of your car has a lot to do with your insurance premiums. An older car usually costs less to repair or replace, making it cheaper to insure. Because each car depreciates at a different rate, and each car starts with a different value, the impact on rates varies across different vehicles. But in many cases, an older car may be cheaper to insure. New high-end luxury cars, on the other hand, cost more to insure. The specific model you choose will also have an effect on insurance rates. In fact, even different trim levels can impact your rates. A sedan, for example, may cost less to insure than the coupe version of the same car. This is because coupes could be considered sportier and statistically at a higher risk of an accident.
If you choose a sports car, be prepared to pay higher rates. Know that there are great options and discounts available on insurance for your sports car and steps you can take to lower your rates, including driving your sports car less, installing anti-theft devices, and improving your driving record.
It should come as no surprise that the most consistently stolen car makes and models cost more to insure. While anti-theft devices can help to reduce the risk of theft and thus bring down your insurance rates, a car that is commonly stolen will continue to carry a higher premium. This is just one of the many statistics that a car insurance company uses to determine rates, and it’s important to think about when car shopping.
Overall, getting the right coverage can help you enjoy your car more, worry less, and save money for as long as you own your car.