Better to Buy Cars New, Used, or Leased?

What’s best for the average person might not be best for you.

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There's a reason that most financial writers suggest buying a used car rather than a new car. For the average person, with average driving habits and an average consumerist attitude, a used car will more often save money over the long run. It's this average person that is the target of most mass-media financial advice.

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You're not an average person; you're an individual person who may differ from the average in any number of ways. Even still, buying a reliable used car is most likely a great suggestion. Some of the logic behind this advice may not apply, however.

One reason financial advisers suggest buying a used car is due to the effect of depreciation. The fact that a car is used lowers the price of that vehicle almost immediately. Some new cars lose as much as 40 percent of their value when a new owner drives it off the lot. Depreciation is the reason buying a new car often compared to throwing money away, but some owners have found away to eliminate the effect of depreciation.

It's easy: Keep the car until it's no longer drivable. Depreciation doesn't matter if you never sell the car. However, most car owners will want to trade up to a newer, better vehicle early. Even the best intentions to drive a car into the ground can backfire. If unlike most people you have the discipline to hold on until it costs more to keep the car operable than it would cost to replace, you might be better off buying a new car. If taken care of, the vehicle will reward you with more drivable years.

If the financial experts say cars lose 40 percent of their value immediately due to depreciation, you should be able to find year-old, just-off-lease vehicles for sale at such a discount. Some cars hold their value a bit better—and those that don't may not be of high enough quality to continue to last for years. The best cars to operate, when sold lightly used, are often priced at only a slight discount.

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There are other benefits to buying used that would be hard to argue against. Insurance is often lower for a used car than the same model new car. If you're buying from a dealer and require financing, you might pay less interest over time due to the lower cost of the vehicle, even if the interest rate is higher. If you find a private seller, you can avoid the dealership and perhaps save the stress of dealing with a tough negotiation.

What about leasing? There's only one situation that calls for taking a lease on a new car. If you need a certain vehicle to further your career, as superficial as it might be, it may make more financial sense to lease. Many people lease a vehicle simply because they want to continually own the latest and greatest vehicle. If you have the money to burn, why not enjoy the pleasure of driving? Anyone who is concerned about making the most of limited funds should save cash for other priorities.

When it comes to owning a car, you can't go wrong with advice designed for the average consumer, but if you pay attention to your specific situation, needs, attitudes, and expectations, you might find the best choice for you is not the most popular amongst financial advisers.

Luke Landes writes for Consumerism Commentary, where he encourages discussions about money and consumer issues. Consumerism Commentary regularly tracks and reviews the best online savings accounts and other financial products.