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What is the best financial decision?

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From the moment you decide that you need a replacement for your old Honda Civic, there is a feeling of excitement in the air.

Buying a car is one of life's most expensive purchases, and you must make a careful decision when deciding what your next vehicle will be.

What brand and model are you looking for? Do you have a color in mind? What kind of accessories do you need? Are you looking for tinted windows and air conditioning?

Deciding which is your ideal vehicle is a personal choice, some people prefer Ford, while others prefer BMW.

Whatever your taste, there is a question you should seriously consider; New or used purchases? There are several advantages and disadvantages to any of the options, and you must understand both parties before deciding on your final decision.

Let's look at both sides of this argument and the pros and cons of buying a new or used vehicle.

Buy a new car – Professionals

No previous owner

The best benefit of buying a new car is that you don't have a previous owner. There is no history of service to go through, and you do not have to worry about any of the electrical, mechanical or hydraulic components of the vehicle. The manufacturer delivers it to the showroom, and you take it to the road in perfect condition.

From there, it is up to you how to maintain and care for the vehicle. However, at that time, you leave the dealership; You are the first owner of the car. You can be sure that you drive a vehicle that comes with a warranty in case something goes wrong.

Engine plans

If something goes wrong, your car repairs or service are covered by an engine plan. You should not have to pay anything more than gasoline and tires for at least the first 60,000 to 80,000 miles. Service costs are a significant expense for people who buy used vehicles. Having a car that has all its service plan in front gives you peace of mind.

Engine plans are useful and allow you to repair your car at regular intervals. If you go on vacation with the family and take the car, you must keep the vehicle before the trip. If it is a used vehicle without an engine plan, you can choose to give up the service to save money for the holidays. However, if you have a service plan, there are no costs associated with the service, and you and your family have a safer trip.

Ease of access to credit

The automotive industry is a key part of the backbone of the United States economy. GDP figures depend heavily on new car sales, and both manufacturers and the government want people to buy new cars. As a result, there are fantastic dealership specials on new vehicles throughout the year on selected models.

You will also find it very easy to get credit on a new vehicle, even if you have a bad credit score. If you have a subprime credit score, then you can expect the lender to charge you a higher APR in your purchase agreement. A higher APR means that you will probably pay between 20 and 30 percent more for your car than someone who has good credit.

State

There is nothing like the thrill of driving in a new car. The surprise factor takes months to disappear, and during this time, the vehicle gives you a lot of joy while showing it to your friends and family. If you buy a newer and more expensive model from a luxury manufacturer, then you get some elevation in the state along with a new car.

How to pay the car loan early

Read: How to pay your car loan early: Complete guide

Buy a used car – Professionals

Affordability

The best benefit of buying a used vehicle is the affordable price. When you buy a used car, the price of the tag can be 30 to 90 percent less than the original price of the tag when the vehicle left the showroom floor.

You do not have to worry that depreciation ends the value of your vehicle. When the time comes to sell, you will receive a much lower percentage of visits than someone who is the first owner of the car.

Cash payment

Some lenders will finance a second-hand vehicle, but they are few and far between. Most lenders focus on financing the new car market. Therefore, you most likely have to pay for your car in cash.

It is for this reason that the used car market has such low prices compared to the new car market. Depreciation can quickly consume the value of a vehicle, especially if it is maintained for more than four years.

Insurance costs

When you buy an old vehicle model, your insurance costs will be cheaper than buying a new car. Compensate for this cost savings through a loan agreement, and it could add significant savings compared to buying a new car.

Get a better model

As you are buying a used car, you can afford to reach and buy a model car better than something new that has the same price. Instead of opting for that BMW 1 Series 116i 2019, you could afford a BMW 130M package for the same price as a used model.

Buy a new car: the cons

Expensive

Buying a new car is expensive. Vehicle manufacturers continue to update models with the latest technological components. While this makes cars safer and more pleasant to drive, it also increases its cost.

Two decades ago, the technology available in mid-range family salons was ridiculous compared to current vehicles. However, these advances have a cost, and you can expect the prices of decals for new cars to continue rising in the future.

Depreciation

The moment you drive your new car off the road, take the smell of a new car. Enjoy it while it lasts, because the price of the car decal falls between 20 and 35 percent as soon as your tires touch the track.

As a result of the rapid depreciation, you are behind the eight ball since the beginning of the agreement. Be sure to have a gap insurance to cover any deficit in the insurance values. The last thing you want is to have an accident in the first year. The gap in your insurance coverage could leave money to the lender

Insurance costs

Securing new vehicles is a burden on your budget; They cost much more in monthly premiums than insuring an older model car. Check with insurers before enrolling in any company. Always ask your insurer to adjust your premium every year to keep pace with the depreciation of your vehicle. Look for insurance providers that offer unclaimed bonuses for responsible drivers.

How to get a car loan with bad credit

Read: How to get a car loan with bad credit: Complete guide

Buying a used car: the cons

Previous owner

The biggest drawback of buying a used vehicle is that you have no idea how the previous owner used to drive. It also has a minimum indication of the car's service history, unless the previous owner has kept a service manual.

The first thing to look at is a service manual after evaluating the exterior and engine of the vehicle. A good owner will maintain accurate service data with the vehicle dealer. If you choose to repair the car with a private mechanic, make sure they have records of all previous services.

However, even though the car may have a history of service sold, it still has no idea how the owner used to drive. If you are buying a sports car model, such as a Ford RS model, then the previous owner probably had a lot of fun driving the engine to the red line.

Service costs

With a used vehicle, you are responsible for the service costs related to car maintenance. Therefore, if your Ford RS needs a new clutch because the previous owner had a heavy foot, you must disburse cash for the repair instead of putting it into a service plan.

State

Buying a used vehicle is not exactly something to shout from the rooftops of your neighborhood. However, you will still enjoy your new trip for a while.

Finance or cash?

Is it better to buy a car with financing or pay it in cash? If you decide to finance a new vehicle, you get the benefit of paying for the car for more than three to five years. Some car dealers now offer 7-year terms on new cars.

This strategy has many benefits and helps keep your monthly budget under control. Paying cash for a car in advance eliminates the responsibility of paying monthly fees for the car, but you may have to access your decks to buy a depreciated asset. Buying an asset that depreciates with your savings is never a good idea, and in this case it is better to go with finances.

However, buying in finance also means that you have to pay interest charges in addition to the tag price. People also don't take into account that their insurance premiums will also be higher.

Think of interests and insurance

Interest and insurance costs are factors that you need to consider before signing your car sales agreements. When you buy a used vehicle with cash, you don't have to worry about paying interest on the deal.

However, when the car is financed, you must pay the lender interest on the agreement. Your interest rate depends on your credit score. People with credit scores of more than 800 or more will receive the best rates and can expect an APR of around 3 to 5 percent.

If you have good credit, you will get some more points in the interest rate. If you are a high risk lender, you can expect to pay up to 24 percent of APR in your financing. If you are dealing with an interest rate of 10 percent, you can expect to pay almost half of the price of the car sticker in interest over a 5-year loan term. Interest makes buying a car a significantly higher expense than buying a used car for cash.

Insurance also plays an important role in the monthly expenses of your vehicle. Before closing the car you want, be sure to call some insurers before signing the purchase agreements. Most lenders will not allow you to drive a new car off the floor of the showroom unless you first have proof of insurance.

The verdict: take a lease

There is a third option that also requires consideration. Ask yourself how important car ownership is for you. If you are the type of person who wants to change your vehicle every three to five years, why buy your next vehicle?

Property is overrated, and leasing is the way of the future for millennials who want to get a new car. The lease allows you to benefit from lower monthly payments for the same type of new car you were interested in buying. The lease rate can sometimes be up to 25 percent cheaper than the purchase-rent rate.

Read: Lease a car: complete guide and mistakes to avoid

The agreement is that after three years of payments, you have enough capital left in the car to cover the outstanding balance you owe. If you mistreat the vehicle and do not maintain it, you could be responsible for any additional damage or misuse of payment at the end of the lease term.

However, if you drive your vehicle respectably and maintain it properly, you can expect to obtain fair market value for your car. Once the transaction is completed, you simply have another lease agreement for a new car and the cycle repeats.

With this strategy, you never have the vehicle. However, it is not as if you were a collector driving a 1969 Corvette. Modern cars are like cell phones; Manufacturers build them, so they eventually crumble. Why pay for maintenance when you can get another vehicle?

When leasing, you never have to worry about your car getting out of your service plan. You don't have to worry about breaking down and having to spend a fortune on car repair.

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Disclaimer: The opinions expressed herein are only those of the author, not those of any bank or credit card issuer and have not been reviewed, approved or endorsed by any of these entities.

Disclaimer: The answers below are not provided or commissioned by the bank advertiser. The responses have not been reviewed, approved or supported by the bank advertiser. It is not the responsibility of the bank advertiser to ensure that all publications and / or questions are answered.

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