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Time for a new vehicle? Examine the total cost

Buying or replacing a car before the summer? What you choose to purchase, and how you pay for it, can have a big impact on your household budget.

If visions of a new vehicle are roaming through your head, consider the following factors before making a purchase.

The longer you drive it, the better value you’ll get

It rarely makes sense to replace a vehicle every year or two; unless your employer is footing the bill. Rather, set your sights on driving the vehicle for a minimum of four to five years, regardless of whether it’s new or used. So, ensure it’s in good condition.

Used takes advantage of depreciation

Unless you’re driving a specialty car, a new vehicle will lose 30 per cent of its value within three years. And, that’s the rationale for buying a used vehicle that’s a few years old and in good condition. Besides the vehicle being previously used, the disadvantage of a used vehicle is there can be less attractive financing options, which means you could have to pay for a good chunk of the car upfront with cash, a bank loan or line of credit.

Buying new can be a good option for your budget

Sometimes, if you plan to drive the vehicle for a very long time (7 years or more), it can make sense to buy new for a variety of reasons including:

  • Lower interest rates on financing
  • High reliability
  • Dealer incentives at the end of the season
  • Lower insurance
  • Better gas mileage
  • Eventually you’ll pay it off and own it outright; giving you some of your money back when you eventually sell it

The only way you’ll know if this option makes sense versus buying used is to compare the total costs of each option. Include the down payment, fuel, insurance, car payments, interest costs, registration costs, taxes, and residual value (what it’s worth when you think you’ll be ready to sell it). You might just find that a new car could actually be cheaper than a used one you’ll end up replacing sooner.

Leasing can sometimes make sense

There are a few scenarios when leasing can be better than buying new or used.

  • If you own a business, your payments can be written off
  • If you change cars often, leasing can allow you to move from vehicle to vehicle easily
  • If the lease payments are significantly less than the financing payments, you could save the difference and end up with more money than if you had bought the car outright and sold it at the end of the lease
  • When you only need a vehicle temporarily

The bottom line when shopping for a vehicle is to compare the total costs of all the options across a variety of brands, makes and models. And let the numbers, rather than the emotional excitement of a new ride, drive your decision-making.

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