Buying vs. Leasing

[Trekker4747]

I'm going to be in the market for a new car here in the next few months and have been trying to weigh some of my options when it comes to time to put the money down and go forward. Right now I'm trying to save-up for the down payment and get my personal spending under control to see if I have the flexibility in my finances to have room for a car payment for the next 5-6 years. (Ugh. Just typing that....)

I have good credit history so I should be able to get a good interest rate on a loan, I already know what I want to get and have a good idea on what pricing will be for it and, luckily enough, there's a local dealership that offers no-hassle purchasing by offering every vehicle sold with a $50-over invoice price.

But one thing I've been looking at is leasing the vehicle I want but I'm not entirely sure how it works. You hear good things and bad things about leasing.

I'd very likely do the "lease to own" thing but I'm not clear on how that works. When the lease is up the money you've put into the car already ends up going towards purchasing it. But then what? Do I now pay what I would have if I had bought the car new? Do I pay off what the car is now worth?

Another avenue I've considered going is "Certified Used", getting the car I want that's in the used car lot at the dealership. It'd be harder to find precisely the one I want so I may have to sacrifice on interior/exterior color and options but I'd be paying a bit lower price. I should still be able to find a car in the model-year I want as it's likely cars are always being returned, ex-program cars, etc.

But, man, there's just something about buying a new car and knowing that virtually all of the miles on it are yours!

Or, should I just go ahead and buy new? Like I said, I can get a good price on one at this dealership and if I have the proper flexibility in my finances why not go for it?

I'm also second-guessing myself a bit on the decision to keep my current car. The car I want to get (late model Ford Mustang, whether this ends up being a 2014 or 2015 will depend on when I buy) wouldn't lend itself well to winter driving being a rear-wheel drive vehicle. There may also be times when my 4-door Focus may be more practical choice to go.

The problem is that car is going on 15 years old and has almost 140K miles on it. The last two months I've spend $1200 on it in repairs. Serpentine belt went out on in March taking a tensioner with it and also had to replace a motor mount. April saw the alternator going out on it. The car is at that age where things are going to start failing on it.

The car is otherwise in good condition but I know at some point other things are going to need replaced on it. Is it practical to keep it? Something could still fail on it causing me to have to fix it AND manage a car payment, and it's likely the car just sitting there won't do it any favors since I likely won't drive it very much unless the situation calls for it. Besides, what do I need two cars for? It's just another car I'm going to have to pay insurance on. (I suspect insurance on two cars is more expensive than insurance on one.)

On the other hand..... I own it. It's mine. If something happens and I can no longer afford to maintain the loan on the new car (unlikely but could happen) I could lose it/sell it back to the dealer and still have a car. If I sell my car and I lose the new one I'm out a car. I won't get anything on trade for my current car so it's useless for me there and I'm just not sure I want to go through the hassle of selling it directly to someone.

I may just keep it but, again, it'd just be sitting there waiting for something to go wrong with it.

Any suggestions/advice?

 

[Yoda]

Hmm, is it more practical to buy a new Mustang, or to stick with your older car that you recently had fixed... Is this a serious question?

 

[Trekker4747]

I'm going to need a new car sooner or later, simple as that.

 

[Yoda]

If you say so. My car is a little older than yours, has more miles on it, and also has occasional work done on it. So you spent $1,200 in the last two months on repairs. Presumably that's not a regular occurrence, right? And $1,200 is what, 3 months of payments on a Mustang?

The fact that you still need to save for the down-payment makes me think this is not a great idea for you. If my car dies I could buy a new car outright, but I still wouldn't kid myself that buying a Mustang would be particularly practical. I'm not really a car guy, so if you are then you don't need to justify your hobby.

 

[JarodRussell]

Always preferred buying over leasing.

 

[Robert Maxwell]

Leasing is more expensive if you end up buying the car at the end of the lease. Better to buy it from the start if that's your intention.

 

[Kirby]

Leases are expensive, especially considering you have absolutely nothing when you're finished with the lease; unless you buy the car afterwards, and that is not cost effective.
Research depreciation on new cars, they take the biggest hit within the first 2-3 years. Your best bet financially is to buy a used car, ideally from a private party, not a dealership.

And yeah, a used car isn't as *kewl* as a new car, but new cars become used cars pretty quick.

 

[Mr. Laser Beam]

Another vote for buying.

 

[Captain Ice]

Trekker, having just done this myself, I can say that buying still makes a lot more economic sense than leasing. On my new car, the difference would have been about $50 a month. Nothing to scoff at, but at the end of the contract, for $50 each month, I own the car outright and if I do things right should be able to pay cash for the next car when this one wears out in about 15 years.

 

[Trekker4747]

Yeah, I think I've settled on buying over leasing as I've done more research on it. It just feels better to "own" something rather than renting it.

The fact that you still need to save for the down-payment makes me think this is not a great idea for you. If my car dies I could buy a new car outright, but I still wouldn't kid myself that buying a Mustang would be particularly practical. I'm not really a car guy, so if you are then you don't need to justify your hobby.

Why is needing to save for a down payment indicative of anything other than I've not been allocating funds towards the future purchase of a car? Considering I *just* decided in the last week or two to save for the down payment, which I only need between 2 and 3 grand to put down 10%, I've got the money for it now but I'd have to take it out of savings that I don't want to touch as its an emergency fund and for living expenses. I have the extra cash for a car payment I just need enough for a good down payment. Shouldn't take me more than a couple months to save up for the down payment.

Right now my biggest debate is whether to go with a 2014 or a 2015 Mustang. The 2015 model is going to have an Ecotrack 4-cylinder that supposed to have better performance than the V6 but with better gas milage. That sounds interesting to me and might be something worth waiting for once more specs/reviews come out on it.

 

[Yoda]

Well, personally I think if your savings aren't 2k more than what you feel you need as an emergency fund then you're better off with a goal of saving more money instead of buying a new car. Also now you're saying you have extra cash for a car payment whereas before you said you need to get your spending under control to afford it on a monthly basis. It just sounds like a lot of your resources for a car that you don't really need. I'm not going to argue the point anymore. Good luck with whatever you decide.

 

[RoJoHen]

The only people I know that lease cars are people that like to trade them in every 6 months for something new. For a long-term investment, it doesn't make much sense to me.

I've always bought used cars.

 

[Pondwater]

The only people I know that lease cars are people that like to trade them in every 6 months for something new. For a long-term investment, it doesn't make much sense to me.

I've always bought used cars.

^This.

 

[Amaris]

^ Seconded. Buying makes far more economic sense than leasing. When I'm in the market for a car, it has to be used, and I'm going to buy it. Right now, I'm driving a 1993 Saturn, that has 140,000 miles on it. It's still running, so I'm going to keep driving it until it's no longer running. Then I will find a reasonably priced used car, and buy it. Leasing just wastes money.

 

[Trekker4747]

Also now you're saying you have extra cash for a car payment whereas before you said you need to get your spending under control to afford it on a monthly basis.

I *do* have the extra cash for a car payment, just that I can't *both* have a car payment and spend as much money as I do on luxuries. I can afford a car payment, I just need to get used to operating under a slightly tighter belt.

 

[Captain Ice]

Have you given any thought to keeping your Focus running until the repairs get cost prohibitive, while in the meantime putting as much money aside as you can in order to make a large down payment (like 40-50%) on your Mustang? I did that and managed to get 40% set aside before my a/c compressor started giving warning signs.

 

[Trekker4747]

I'm likely keeping the Focus no matter what. I may wait as long as a year to get a new car. The Focus still runs but, again, it's just at that age where it's going to need expensive repairs as various components naturally fail. I way over due for new shocks but the ones are the car now still function okay, though they're squeaky and creaky.

I'd like to be able to but down as much as 20% on the 'Stang but we'll see. I've been reading interesting things about the '15 (that it's going to have an "Ecoboost" 2.something liter 4-cylinder that out performs the V6.) We'll see how it all goes but it's time for a new car and I've settled on buying over leasing. There's just a lot in leasing that's risky.

 

[Robert Maxwell]

I didn't read your full original post, but are you aware your insurance rates will likely be high because of the Mustang? Are you prepared for that additional expense?

 

[Trekker4747]

I didn't read your full original post, but are you aware your insurance rates will likely be high because of the Mustang? Are you prepared for that additional expense?

I'm aware. My insurance is pretty low as it is with nothing on my driving record. I'm going to contact my agent and ask him how much more the insurance is.

 

[Mr Awe]

Hey Trekker, definitely smart that you're researching such a large purchase in advance. Wise choices going with purchasing over leasing and great that you're looking into things like the impact on your insurance.

There's only one thing I'd add, most experts will say that if you need finance it over 5-6 years it means that you can't afford the car. Save up more until you can pay it off in 3-4 years. That's a good guideline to follow. And, it does sound like you are giving yourself time to save.

Mr Awe