One of the day to day family financial decisions we have to make as adults is whether or not we should buy a car or lease a car. Over the past twelve months, there have also been options popping up across America around the concept of joining a subscription service and renting a car. Making the right decision for your family can potentially not only improve your budget, but it could also improve your lifestyle. Here are my side by side on whether you should buy, lease, or rent a car.
- Buying A Car – There are lots of considerations when you buy a car, but traditionally I have only been a fan of buying used cars that are two to three years old and the large initial depreciation wears off. You can cover yourself by buying a bumper to bumper 100,000 mile extended warranty if you have concerns about something major happening to the car, but I like the idea of buying cars this way. If you cannot pay in cash (which most people cannot), consider my 20/10/4 rule to buying cars.
- 20 – This means put down 20% down payment on the car to keep the price low. You should double check your overall interest rate to see if putting down less really makes sense, but in general I like putting 20% down like you would on a home.
- 10 – This means that the monthly payment for the car shouldn’t be more than 10% of your NET monthly income. So, for example, if you make $3,000 a month your monthly payment for the car shouldn’t be more than $300.
- 4 – This means no more than four years on the loan. By the time the car is seven years old, you’ll likely be looking to trade into a new car and don’t want to have to deal with carrying a loan into the new negotiations.
- Leasing A Car – When you lease a car, the good news is that you shouldn’t have to come up with a ton of money out of pocket. You’ll hear the term ‘cap cos reduction’ which is really a fancy way of saying down payment. The important part of leasing a car is to focus on negotiating the price of the car first instead of having the dealership let you negotiate over a monthly payment because they can be very creative in their financing. Once you have agreed on the price, then you can more clearly see how interest rates were used to focus on the payment amount.
What’s nice about leasing, is that every two to three years you can have the excitement about getting into a brand-new automobile. However, leasing can be fraught with perils. You need to read the fine print closely to understand your mileage limitations and your wear and tear responsibilities. In most leases, if you pass a mileage amount such as 10,000 miles or 15,000 miles, the dealership will expect you to owe .25 cents a mile as an example of every mile you drive over the limit. If you have excessive wear and tear, you may be responsible for out of pocket costs to make the car market ready.
If you do choose to lease, you may also want to look into GAP Insurance. This is optional insurance coverage for the new lease that may pay the difference between the balance of the lease due on your vehicle and what your insurance company will pay if the car is considered a covered total loss.
- Renting A Car – Most people think renting car means going to Hertz or Avis and picking up a car for a few days. However, the newest phenomenon over the last year has been major auto dealers who have set up a concierge service for an ongoing rental service. So, how does it work?
Ford, Volvo, Cadillac, and Porsche are amongst a few of the dealers who are testing these programs in major cities across America. In these programs, you pay one monthly fee and as opposed to having one car to choose from the dealers give you anywhere from a few cars to one program that has over 20 cars. This means that one week you could drive a convertible, an SUV, a truck, or whatever car you need that particular week giving you flexibility in your driving needs.
The beauty about most of these programs is that you don’t have to carry personal auto insurance anymore (you are on fleet insurance), you have no maintenance requirements, you have no mileage requirements, and yes you don’t even have get your car washed anymore. Each of these programs the concierge element comes into play where the dealer will drop off the new car at your house or work, and then take the old car from you. All you pay for is gas.
The bad news is now you have a car payment forever, but if you like the flexibility of choice of automobiles it may be hard to beat these types of programs.
If you want to set up a time to figure out what option is best for your family, please go to oXYGen Financial to set up an appointment.