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Buying a Car: New, Used, or Lease?

Unless you live in the heart of a large city with accessible mass-transit, you probably need a vehicle. Unfortunately, vehicles can be an expensive component of your finances. When it is time for a new vehicle, do you buy a new or used car? Or, do you skip buying altogether and lease?

Buying a New Car

Unlike buying a house, when you buy a vehicle, it has no chance to increase in value. Vehicles are depreciating assets, which mean they are not investments, but an expense. Buying a car can still be a good decision, but the type of vehicle, along with whether you buy new or used will have a significant impact on the financial outcome.

If you choose to buy a new car, keep in mind that the average car loses around 50% of its value over the first three years you own it. This is extremely important if you are someone who likes to buy a brand new car every few years. You will be wasting a lot of money to depreciation just to have the latest model.

Buying a Used Car

This is where buying used can create more value. If you buy a car that is already two or three years old, you’re letting someone else lose money on the initial depreciation. This also means that by buying a vehicle that is a couple years old, you’re getting a relatively new vehicle at 25-50% off what you would have paid just a few years ago.

Buying used is becoming even more attractive in recent years due to warranties. In the past, buying a used car usually meant giving up the manufacturer’s warranty. Now, as automotive companies fiercely compete for business, you can often obtain a used car while still retaining the warranty, or even have the ability to purchase an extended warranty.

Leasing

Finally, if you choose to lease instead of buy, there are a few important considerations. On the surface, a lease always sounds like an affordable way to get into a brand new car. While it’s true that you may be able to keep monthly payments down with a lease, it does have drawbacks.

First you have the down payment. When you put money down on a new car purchase, that money will go right into the value of the car and reduce the amount of money you have to borrow. With a lease, there is almost always some sort of money due up front, which can be $2,000 or more. This is lost money, and you will still need to make the same required monthly payments.

Jeremy is the author of the personal finance blog Generation X Finance, which aims to help a unique generation achieve financial independence. Jeremy also writes for the Financial Planning topic over at About.com. He currently works as a retirement plan specialist with a focus on employer-sponsored plans.


  • bmay2

    What does the content of this post have to do with Prosper?

  • http://www.rateladder.com RateLadder

    @bmay2

    This blog is a mechanism for communicating Prosper specific news and general education topics related to Prosper and personal finance. Any personal finance education and entertainment posts are Prosper related because when used responsibly, Prosper is tool for improving your financial life.


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Notice: Blogs and other materials posted on or linked from this page that use the name "Prosper" generally use that name to refer to Prosper Marketplace, Inc. if published before January 31, 2013 and to refer to Prosper Funding LLC if published on or after February 1, 2013.