Long desired but fearful of repercussions of writing this article, we finally had the courage to jump in. Opinions on this subject are sometimes very strong (maybe even divisive!) on either side of the fence.
In doing research for this we came across a very handy internet site, www.usedfirst.com. While you may only be interested in buying a new car or leasing, one of the most important items is the residual value, especially in leasing. As the following neat graph shows from the site, there are dramatic differences in the decay value of cars. In our opinion, worthy of at least a few minutes research, especially if you are open to different makes and models.
Those that are interested in buying a used car, the handy site will also target an expected BEST year to buy the car, as shown in the next very high end auto, with a steep depreciation schedule.
The Case For Leasing
Leasing a car is by far the least expensive from a out of pocket standpoint (minimum monthly payment) way to get into a NEW Car.
In certain cases there is a great desire to drive a vehicle that is no more than two or three years old, in this case leasing is likely your best decision. Continued safety is certainly a big point for the new car ownership.
The Case For New Car
If you are one that must have a new car, but are willing to keep it for an extended period of time, purchasing a new car is likely your best option.
A favorite place to buy a new car which we have had good experience is a membership program such as Costco or Sam’s or any other type of membership that gives you some sort of unique advantage or barrier for the general public. Always check the prices using your friendly Internet as there is tons of information out there to get the price range of the vehicle you want.
The Case for a Used Car
With a normal depreciation of between 15% and 30% per year (there are exceptions, but on the average these numbers are correct), our favorite “new car to you” purchase recommendation is buying a one or two-year-young automobile with low mileage, and keeping it until it will drive no more. Most cases this will save you a great deal of money-there are exceptions be sure, we recently ran onto a situation where a later year brand new car was within striking distance of a used car because the new models were coming out. In this case it made sense not to opt for a one-year-old car and just buy a late year new car. But on the margin, the statistics above are true.
Have a Great “Lease or Buy Car Informed” Day!
John A. Kvale CFA, CFP