re: First Time Car Buyer - Update on page 4

Look, I understand where you're coming from and I have really been considering the advice you have given me. The truth is, in my situation, buying a used car makes the most sense financially. Like I said, my wife and I just finished working the first 6 months of our careers. Our total family income is around $80,000 yearly. We came from a situation where we had nothing saved or invested prior to taking these jobs. It's possible to be financially secure on a budget, but you have to make the smart move every time. I want to be able to buy a house, start investing, and begin putting money away for retirement in the very near future. If we purchase a used car, we can get everything on our wishlist and still stay within budget. Sure the car will be 3 years old and have some mileage on it, but in the long run it still becomes the cheapest option. Part of the reason we drove our cars for so long is out of necessity. These are the cars our family gave to us as teenagers and they were totally paid off. We couldn't afford to upgrade until now. This will not always be the case. My wife is already in the process of being promoted and should receive a 35% salary increase in the near future. I am not far behind and should receive a raise after completing my first year of work for the company. All of this is possible, but you have to stick to the plan.

Here is some hard data to prove what I'm talking about:

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Leasing: The average midsize car lease is based on a car that sells for $24,775 with drive-off fees of $1,154. This results in a $294 monthly payment for three years.

Buying New: When buying the same car, the average down payment on a five-year loan is $4,104. The average interest rate is 1.64 percent, resulting in a monthly payment of $400.

Buying Used: The average price of a similar 3-year-old midsize sedan is $15,688. The average interest rate is much higher: 6.04 percent. The average down payment is $2,304. The monthly payment is $301. (Fewer low-interest deals are available for used cars, and the credit scores of people shopping in this category are lower, according to Edmunds data.)
After six years, here are the total out-of-pocket costs of each financing method:


1. Leasing
2. Buying New
3. Buying Used
Total out-of-pocket costs
1. $23,476
2. $28,104
3. $20,364

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In terms of out-of-pocket expenses, leasing costs $4,628 less over six years than buying a new car, excluding any repair costs the new car might incur. The out-of-pocket cost of buying a used car is $3,112 cheaper than leasing and a whopping $7,740 cheaper than buying a new car. Again, any costs of repair for the used car are excluded here.

Here is something essential to remember about the apparent lower cost of leasing versus buying new: At the end of two leasing cycles, the person who leases doesn't own the car. He or she has to start a new lease-or-buy cycle. Meanwhile, the person who bought a new car now owns a 6-year-old vehicle worth about $9,687 on the private-party market, according to Edmunds data. The person who bought the used car now owns a nine-year-old car worth about $4,794.

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When we deduct the current value of the new and used car from the out-of-pocket costs, the long-term cost picture changes:


1. Leasing 2. Buying New 3. Buying Used
Final costs
1. $23,476
2. $18,417
3. $15,570
In this basic comparison, it appears the person who leased the two midsize sedans paid $5,059 more to drive these cars for six years than did the new-car buyer. Buying a used sedan saved the purchaser $7,906 as compared to leasing during this six-year cycle. Buying used rather than buying new saved $2,847.

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