Step 4: New, Used, Certified or Leased?
Vehicle purchase options include new, used, certified or leased. But which one is best for you?
If you’ve determined your budget and have started browsing car ads it won’t take long to realize you can drive more car for less money if you consider leasing (versus buying) a new car. You can also afford more desirable models by buying a used or certified pre-owned model. Whether you are spending $15,000 or $50,000, you’ll have a much wider array of choices if you consider new, used, certified pre-owned and leasing. To help you narrow it down, let’s look at the pros and cons of each.
New cars offer numerous benefits, with the most prominent being the lowest cost of ownership in the initial years. All new cars offer bumper-to-bumper warranty coverage for at least 3 years or 36,000 miles (sometimes longer depending on the manufacturer). This means any mechanical repair that is needed during the warranty period is paid for by the manufacturer. As a result, all you need to pay for is regular maintenance and the replacement of wear-and-tear items, such as brakes and wipers, though some automakers even cover these items for free during the warranty period. In general, brand new cars are more reliable than used cars, making it highly unlikely you’ll be dealing with vehicle break-downs.
The disadvantage of buying a new car is, of course, its cost. Buying a new car is the most expensive way to pay for your personal transportation. In addition, every new car owner is faced with the greatest depreciation in vehicle value initially, as well as during the first few years of ownership. The result is usually a period where the owner is “upside down” in his loan – meaning the car is worth less than what is owed to the bank. This can be a problem if the owner wants to sell the car during that time and it could be a problem if the car is totaled in an accident (depending on insurance coverage). Speaking of which, new cars are more expensive to insure than their used counterparts.
Leasing a car allows a person to drive a new car at a lower monthly payment than owning that same car. Leased cars offer similar benefits to new car ownership, in that a leased car is almost always under its warranty during the full term of the lease and lessees simply need to pay for regular maintenance items. As a result the so-called ownership costs are greatly reduced compared to owning the same new car. That’s a good thing, because with a leased car you don’t own anything and must return the car at the end of the lease period with minimal wear-and-tear.
Other disadvantages include mileage limits and end-of-lease charges for exceeding the mileage limits or for damage such as substantial door dings and scrapes. While these charges are detailed in the initial lease contract, determining which charges apply to a specific leased car can be somewhat nebulous, potentially leaving the lessee with some financial surprises at the end of the lease term. In addition, like new cars, leased cars are also more expensive to insure than the same used model.
Used cars always provide a cost savings over new cars in the initial purchase, regardless of whether they are nearly new or several years old, because some of the depreciation has been absorbed by the initial owner. Depending on the age of the used car it may have some of the bumper-to-bumper warranty left, which helps keep ownership costs low. Many used cars are still under the powertrain warranty, which is longer than the bumper-to-bumper warranty and would cover many of the most expensive mechanical repairs at no charge. Used cars are also cheaper to insure than their new counterparts.
With a used car, it can be difficult to know its repair and damage history. Getting a complete picture of the repairs performed can be a challenge and services that check a car’s VIN are not foolproof. Depending on the age of the used car and the repairs it needs during the course of ownership, repair costs can get quite high, though often higher repair costs are offset by the cheaper initial price of the car, as well as the lower cost to insure it.
Certified Pre Owned Cars (CPO)
Certified Pre Owned (CPO) cars are used cars that have undergone a detailed inspection and reconditioning process by an automaker, a dealer or an independent, third-party certifying service. CPO cars that are certified through a manufacturer come with an extended warranty that provides increased protection similar to the car’s original manufacturer warranty. CPO cars, especially those certified through an automaker, also might include free maintenance plans and special car loan rates when using manufacturer financing. Other benefits sometimes offered to CPO buyers include a free loaner car when the car is being serviced and free roadside assistance.
Though a CPO car may still require higher repair costs these can be negated when buying a manufacturer-certified car because of the extended warranty these vehicles include. The only real disadvantage is cost – CPO cars cost more than their used counterparts. While it is worth paying a bit more for a CPO designation, weigh the benefits (which vary by manufacturer) offered with that certified car against the increased cost to ensure it is worth the extra money.
Whether your next car is new, used, certified pre owned or leased you can ensure you are making a good deal by confirming you are getting the best price and negotiating wisely when you finalize your purchase.