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Finance or Used

New, Finance or Used?

When you think of buying a car, there are several routes that you can go down and explore. You can either pay cash, part ex or make arrangements for finance. You can even choose the combination of all these three options. Whatever you choose depends on how your finances look. The UK market has become increasingly competitive with prices dropping, car specifications shooting up and the availability of flexible finance options.

Although there are lot of questions involved in the process of purchasing a car, the first and simplest one is probably the most important one: Should you buy a new car or a used one?

Buying a new car is certainly more expensive than buying a used one. Unless you decide to lease, the initial costs involved on a new car will be much bigger. If you chose to go down the finance road, you will be required to make a down payment of at least 10 percent on a new car loan. If you pay less money upfront, your monthly payment will no doubt be higher. But they key considerations that may tip the balance in favour of used cars are certification programs and new-car depreciation.

Buying a New Car or Leasing – What’s better?

Usually, people needed a reason good enough that justified leasing a car as it was seen as dead money. You pay a sum every month to rent the car and in the end you aren’t left with anything concrete to show for it! The car is not yours so you cannot sell it to build money to buy a new car. However, there are other costs involved in car ownership that you do not have to deal with when you lease and when you actually factor this in, you will realise that car leasing is a rather attractive option.

The Benefits of Personal Car Leasing

The Benefits of Personal Car Leasing

Billionaire oil tycoon J. Paul Getty quoted: “If it appreciates, buy it. If it depreciates, lease it.” That said, this quote envelopes the main benefit of car leasing. Unlike a house, a car usually depreciates in value after purchase and starts decreasing in value the moment you drive away in your brand new car. If you take a car loan or car finance agreement to purchase a car, you are simply paying a fixed amount every month for something that is losing its value rather than gaining any instead. In simple terms you will be buying a product which is depreciating not only every time you drive it around but also when it is sitting on your drive.

Leasing is a different proposition for drivers altogether. Rather than being the owner of the vehicle, he driver can pay a monthly amount to use that vehicle over a set period of time, typically for 24 or 36 months and the end of the agreement the car is taken back by the leasing company.

Let’s take a look at the main benefits of leasing a car:

  • Monthly repayments will generally cost less than the repayments on car loans. As is the case with majority of lease agreements, only a small initial deposit will be required that often sums up to three monthly payments.
  • One of biggest attraction of leasing a vehicle is that you will be able to drive away in a car that might otherwise be out of your budget if you were to buy it outright.
  • The car manufacturer warranty will usually cover the period of lease and maintenance costs can also be covered.
  • There are absolutely no up-front costs, capital outlay or car loans.
  • You can drive around in a brand new car every two to four years and benefit from the fuel economy, safety and performance advancements that are found on newer models.

Leased cars will generally be available in top condition and will usually have MOT certification.

The Aspect of Depreciation

The Aspect of Depreciation

Let’s explore the depreciation aspect of a car to better understand the best option when it comes to buying one. Three years after buying a new car, it will have depreciated on average by a whopping 60%. Yes, you read that right!

This basically means that if you try selling your car, you will only be able to make 40% of its original cost. Of course this is an average figure as it will largely vary depending on the mileage the car has done, its overall condition as well as the make and model. There are a few notorious car models that depreciate at an alarming rate so you have to be extremely careful before you end buying one of these brand new. A second-hand car should be a good deal though.

The cost of car depreciation is very real so it is very important to think carefully about how it will affect the actual cost of car ownership. To help you understand this better, take a look at the example below:

The price of Jaguar SE on the road is £30, 245. After 3 years when you sell it off for 40% of it original price or £12, 098.

The above example clearly shows that it costs you a massive £18, 147 to actually own the car for three years.

However, what if you could drive the same Jaguar SE for three years and it would only cost you a £10, 000 and you will not have to bother selling it at the end? If you cross check the prices with personal car lease you will be surprised to see that the total cost for 36 months lease payments was just under £10, 000. If you are leasing it for business purposes, the lease is even cheaper!

These days the car leasing market is unbelievably competitive and the monthly costs are low. In several cases, these are more or less similar to a car loan and you don’t really need to have a large cash deposit.

You can do the same with a Ford Focus. You can buy a basic model for about £21, 000 and after three years the cost of depreciation is £12, 600. Try leasing it for the same time frame and the overall cost sums up to only £6, 500.

Another important thing to keep in mind is if you buy a new car with added finance cost, the overall price will be even more because of the interest built into the loan repayments.

Advantages of Buying a Used Car

Advantages of Buying a Used Car

  • Better Price

Compared to a brand new car, a used car is definitely going to be less expensive. The comparative advantage of the used car price can allow a buyer to step up to a better model. It indeed feels good to ride a car that no one has ever owned before what with the feel and smell of a new car. But, that scent coupled with brand new upholstery without a single flaw in sight requires a hefty wad of cash owing. In spite of the higher rates, in most cases you will still end up with a much smaller total bill when you go for a used vehicle.

  • Variety (You can buy any make or model year)

Do you have your eyes on a 2005 Jeep Wrangler? Maybe the ideal car for you is 1979 Mustang Turbo? If you are looking for a specific, older model, chances are you are not going to find it in a new condition.

If you purchase a used car, as opposed to a brand new one, you have a much wider scope of selection to choose from and you are not limited to models that were released over the past year or two as you would be when purchasing a new one. You virtually have an infinite supply of inventory to choose from.

  • Rate of Insurance

Just like financing, there will be a drastic affect on the rates of insurance keeping in mind the age of the car, but in this case the used vehicle tends to be less expensive. A little bit of research prior to purchase will save you from insurance sticker shock, no matter which vehicle you choose.

  • Choice

It is quite obvious that you can’t build a used car to order, but maybe you want a model, a package or probably a wheel design that is no longer made. This wider selection can add to the length of the search, but precision and satisfaction seldom come easy.

  • Potentially Evade New Car Fees

If you buy a car at the dealership irrespective of new or old, you are probably going to have a number of fees piled on in spite of the condition of the vehicle. You may also come across other random fees like processing, advertising fees and preparation which can add up to hundreds of pounds. But, if you purchase a used car from a private party, you will be able to ward off some if not all of these random fees.

  • Technology

These days, used car shopping is a different experience altogether as compared to the years in the past. As a consumer you will have a plethora of resources and information available at your fingertips. There are various websites available that will help you determine a car’s value. These also help you search for the value of a car of a specific make, model or year in varying conditions.

You can even get your hands on the experiences of thousands of other car buyers who have purchased the same vehicle you wish to buy. You can find out if these buyers were happy with the purchase; if anyone experienced any kind of problems with the vehicle; information regarding the car dealer and much more.

The availability of this kind of information has made it possible for used car buyers to find out more about prospective vehicle options than ever before.

  • Depreciation

With every passing month and mile, the value of the car decreases at a rapid rate, but the most abrupt decline takes place right away; some car models end up losing 40 percent or more of their value in the very first year. With a used car, there is no getting swamped with depreciation the minute you roll off the lot. To add to this, there is significantly less mental depreciation as there is no need to lose sleep over the first parking-lot ding or rock chip in the paint, as there are very good chances that the previous owner of the car took care of those for you.

Avoiding Depreciation

Avoiding Depreciation

Once you drive away in your new car off the dealership lot, its value drops in the initial years of ownership. If you purchase a mainstream vehicle, expect your new car to lose at least 30 percent of its value within first two years of ownership. Confer with used-car value guides to get a clear understanding of what a particular model will be worth in the future. Leasing guides are another good source even if your intention is to purchase and not lease. Usually, lease payments are calculated based on residual or resale values.

You can contact In Town Automotive for any advice related to car parts as we stock a wide range of components.