John SchneiderIt’s time to get your first car.
This is an exciting time, a time that heralds adulthood.
With all their bright and shiny and “new-car-smell,” even those adulting hard can make a child’s mistake.
Don’t let emotions cloud your judgment.
I’m not a car person – most cars look like Jettas to me. But even I get a euphoric high when I sit in a new car with its new leather, unblemished windshield, latest technology, and spotless dashboard.
The problem is that those dastardly auto dealers are marketing and money masterminds. They’ve figured out how they can oversell and overfinance even people like me who don’t really care about cars.
When getting your first car, you want to leave emotion at the door and realize that you’re probably not going to be driving your dream car.
You may have the budget for a Ford Pinto, but they’ll get you into a Mercedes Maybach if they have their way. It’ll just take 15 years to pay off and cost you more than most people’s mortgage and your first-born child.
But, hey, that new car smell.
Therein lies the birth of car leasing. Why buy a practical car you can afford and own outright when you can buy an impractical car you can’t afford and will never own but will look good on you?
Some things to consider when considering leasing a car.
Lessees don’t own.
The first thing to realize if you decide to lease those hot wheels is that you never own your car unless you choose to buy out your lease at the end of your term.
Most people don’t buy out their leases at the end of their term, no matter how committed they are.
Your ideals are usually high when you sign the lease. However, just like you say you’ll only have one mimosa at brunch, you almost never buy out your lease. At the end of your three to
At the end of your three- to five-year term, unless you have a large sum of money and want to do so, you’re without a car. This is why people become habitual lessees.
You’re always a guest.
All the while, as you lease a car, you’re borrowing it. You must treat the car like you’re borrowing it. This may sound like the above concern, but that’s about managing your money.
This is about living life.
For starters, leased cars come with mileage limits. The mileage limit is usually capped at 12,000 a year or 36,000 miles over three years, the most common term for leases.
Even if you’re an average driver, the U.S. Department of Transportation Federal Highway Administration (FHWA) says you’ll probably average 13,476 miles a year.
So, unless you’re below average, toward the end of each year or your lease term, you’ll probably have to be conscious of your mileage limit. You could find yourself paying a penalty if you go above that limit.
The other way you’re always a guest in your leased car is that if your vehicle experiences wear and tear beyond the norm, you must get it fixed.
Of course, the definition of “normal” is subjective. And, of course, most responsible car owners repair and maintain their cars to keep them in good condition. As a lessee, though, you don’t have the option. Your leased car must be repaired and maintained to keep it looking as good as possible.
Lessees need better credit.
Most people who lease cars do so because they can’t afford to purchase them outright or finance them.
Likewise, those who lease cars tend to have less money to use as a down payment on their car. Therefore, the manufacturer or lender assumes more risk. To mitigate financial risk, manufacturers and lenders require higher credit scores to lease cars.
If you’re getting your first car, there’s a good chance you have a short or non-existent credit history and, likewise, a lower credit score. This will make finding favorable leasing terms harder.
Some things to consider about buying a car.
By now, you’re saying, “Okay, leasing a car sucks, but buying one is hard.”
That’s not necessarily so. By being strategic about buying your first car, you can save yourself money with little complication.
The best way to get a car is to pay 100% cash for it up front. Because most people can’t do that, the second-best way to get a car is the most practical. That’s by putting as much down as possible, ideally no less than 20%, on a certified pre-owned car with low-interest rate financing.
Occasionally, dealerships offer 0% financing. If there isn’t an ideal promotion when you’re in the market to buy a car, credit unions offer great financing terms.
By getting approved through a credit union before shopping for your first car, you’ll save yourself a lot of frustration by not negotiating these terms with a car dealership.
When to lease your first car.
I can only think of one situation when leasing a car makes sense. That’s when someone or something else leases it for you.
For example, my father sold steel to manufacturers. For several years, he was in charge of the Tri-State region and did a lot of driving to sales calls. One perk of his job, because of his required travel, was his company gave him a car.
Even though this was his work car, he used it for work and personal driving. His employer wasn’t in the business of owning cars, so they leased him a car, and he got a new car every three years. Other than the gas he used for his personal travel, all the expenses of his leased cars were his employer’s.
Unless someone or something else to leases a car for you, it likely doesn’t make sense to lease a car. Even if you can get someone or something else to lease a car for you, plan for the day you can buy your own car. Save $200 to $400 a month in an account for when you do buy your own car.
You’ll be happier if you do and will be closer to buying the car you want.
