Car-Buying 2008

By Tom Ripley

A lot of folks -- perhaps you are among them -- regard the necessity to purchase a car as something akin to being sentenced to purgatory. But I’m here to tell you, it doesn’t have to be that way. Sure, there are decisions to be made and contracts to be signed, but if you approach the process methodically, assessing your needs, desires and financial realities in a forthright manner, you can get through this. In fact, it can even be fun.

These days, a key early decision that must be made is whether you should lease or buy your next vehicle. Lease payment options seem compelling when compared with the payments to purchase that same vehicle, and many people think that leasing a vehicle gives them more flexibility than buying a car. But that is definitely not the case. In actuality, buying a car gives you more flexibility because you are not limited to a specified number of miles you can drive; you can modify the car at will; and, most important of all, you can sell it whenever you want to -- even if you still owe money on your car loan. In contrast, if you lease, you are held to a certain number of miles driven each year or you face a rather stiff per-mile penalty if you drive too much. You are not allowed to modify the car by adding things like bigger wheels and tires unless you return the car to its original condition before you turn it in. And getting out of a lease before it has run its course can be very difficult if your circumstances change or if you simply want a new vehicle.

With all this being said, some people are good candidates for leasing. For example, if you feel strongly about replacing your vehicle with a new one every two or three years, you are certain you will drive your vehicle fewer than 12,000 miles a year, and you find it very unlikely that you would want to switch to a different vehicle before the two or three year lease term is up, then you are a logical candidate to lease a vehicle. One thing you should keep in mind, however, is that if you lease you will build no value in your car. Instead, all payments you make -- both the initial payment and the monthly payments -- are simply expenses, or money paid out that you will never see again. 

If, on the other hand, you purchase a vehicle, your down payment and a portion of the monthly payments you make subsequently will buy you “equity” or ownership in the vehicle. If you make all your payments over the course of the car loan, you will then own a tangible asset -- your car. A good financial strategy is to “buy-and-hold.” In other words, choose a vehicle you think you can live with over time and then commit yourself to maintaining that car, paying off the loan and driving it several more years -- monthly payment-free!

A great deal has been written about “the right time to buy.” It is true that dealers usually want to hit monthly and yearly sales targets, so shopping at the end of the month or end of the calendar year might net you a slightly better deal. Bad weather -- snow, heavy rain, floods -- also keeps most buyers away from dealerships, so if you venture out in inclement weather when dealerships are empty, dealers might be inclined to cut you a better deal than in times when their stores are filled with shoppers.

However, none of this outweighs your personal preparedness to get a good deal.  So in reality the best time to buy is a time when you are mentally fresh and you have done your homework on the vehicle you hope to buy. If you are trading in a vehicle you should also have a very good idea what that vehicle is worth. Rushing into an “end-of-the-month” deal without a good analysis of that deal is asking for trouble. With a little preparation -- all done in front of your computer screen -- you can get all the information you need to turn acquiring a new ride into an enjoyable experience.

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