Buy new, buy used, or lease? These are just a few of the many decisions you’ll need to make before happily driving away with a vehicle. While shopping for a car or truck is exciting, it’s also no simple matter. You can avoid buyer’s remorse by making important financial and practical decisions before signing on the dotted line.
By reviewing the pros and cons of buying and leasing, understanding your requirements, and knowing how to get the best purchase price and financing deal before you shop, you’re better prepared to make the right choice.
What’s right for you?
Shopping for a car can be a complicated and time-consuming process. It involves balancing your desires with your economic reality, deciding whether to buy or lease, and knowing what’s the best deal for you. To make the process efficient and improve your chances of driving away happy, you’ll need to consider
- Your needs: Consider your transportation requirements. Does your car need to be large enough for a family of five, small enough to fit in tight city parking spaces, tough enough to haul firewood, or chic enough to drive clients around? How long is your commute? If you’re a one-car family, will this vehicle meet the needs of both drivers?
- Your wants: Your desires play a significant role in the car-buying decision. Make, color, options, and style are all essential factors in being happy with your final choice. Create a list of must-haves and nice-to-haves to help you narrow down your options.
- Your spending plan: It’s easy to get carried away and end up with a car outside your price range and a monthly payment beyond your capacity. Your spending plan – not a salesperson’s opinion – should dictate your decision. Review your income and expenses to see what you have available each month for auto expenses. Remember, you’re not just making a monthly payment, you’re paying for insurance, maintenance costs, and gas. Be sure to include these when making your auto purchase budget.
Save for a down payment or the total cost of the car?
While it is possible to buy a car with no money down, you’ll end up paying a lot more for it in the long run. To put it another way, the more you borrow, the more the car will ultimately cost.
To decrease the amount you finance, it’s wise to make a significant down payment. With enough savings, you may be able to purchase a car outright (typically an option when buying a used car rather than a new one).
Effective saving begins with first determining how much you want to save and then setting a reasonable date to achieve your goal. Using an automatic deduction can make the process easier. You can set up recurring automatic transfers to have a set amount deducted from your checking account and automatically deposited into your savings account. Make sure your savings are earning a nice yield. With our Online Savings account, you can earn 3.00% APY* with Direct Deposit (2.00% APY without it).
New, used, or leased: Pros and cons of each.
After you determine how much you can afford, the next step is to decide between buying new, buying used, or leasing. It’s important to be familiar with the pros and cons of each option.
While leasing a car may enable you to get “more car” for less money each month, it’s important to remember that leasing means renting. When the lease term is up, you return the car. At that point, you will need to pay any outstanding fees for mileage or damage, or, depending on the lease, you may be able to purchase the car outright. Often, you’ll pay more over time by leasing and then purchasing than you would have had you bought the car in the first place. If, during the lease contract, you choose to return the vehicle early, very high penalties will likely apply.
| OPTION | PRO | CON |
| New | Usually the most reliable. Includes a manufacturer’s warranty, which typically covers certain repairs and parts replacements for several years. Easier to customize and get exactly what you want. | Can be very expensive, with higher insurance rates and registration fees. The value of the vehicle depreciates almost immediately. |
| Used | Typically cheaper than their new counterparts, which may enable you to buy the car from savings instead of having to finance. The value of used cars tend to depreciate less quickly than that of new cars. | You may not know the vehicle’s history. It could have been in an accident or insufficiently maintained, making it less reliable. Used vehicles typically have no warranty or a warranty that is soon to expire. The maintenance costs are usually higher than a new car as it may require more maintenance. |
| Lease | You can drive a new car every few years without worrying about selling your old one. You may be able to get a lower monthly payment with a lease than with a car loan. Leased cars are typically covered by a manufacturer’s warranty. The required up-front costs of leasing a vehicle are usually low. | The vehicle does not belong to you. It is not an asset you can sell if you need money. It is difficult to get out of a lease contract if you become unable to handle the payments. The costs of insuring a leased vehicle can be very high. There is a limitation on the annual mileage you can drive the car (typically 10,000-15,000 miles), and you must keep the vehicle in good condition. Non-compliance can result in extra fees. |
Credit reports and credit history.
Your credit history will have an impact on the interest rate offered. The better your credit score, the better rate you’ll be eligible for. Other factors, such as length of employment, income, and expenses, may also be considered when determining the type of financing you may qualify for.
If your credit report isn’t perfect, you may consider having someone with good credit co-sign the loan for you. Be cautious when using this option, as the cosigner assumes equal responsibility for repaying the loan. Any late or missed payments will appear on each of your credit reports. If you’re not sure what your credit score is, enroll in Tulee, our digital banking platform, and you can find out your score for free every month. And there’s no hit to your credit score.
Some financial institutions may offer special loans for first-time buyers. These may enable you to get a loan at a reasonable rate even if you have a limited credit history.
If you’re ready to shop for an auto loan, consider us. Currently, you can get a rate as low as 5.49% APR** with Direct Deposit and Auto Pay (6.49% APR without) on the purchase of a new or used vehicle. If you’re considering refinancing a current vehicle loan to save some money, we can help. Our auto refinance rate is just 5.49% APR.
Financing options and implications.
As impressive as our auto loan rates are, financing does increase the total cost of the car, which is why getting an affordable loan is important. Make sure you understand the following aspects of the loan agreement before you sign any documents with any lender:
- The exact price you’re paying for the vehicle
- The amount you’re financing
- Finance charge
- Annual percentage rate (APR)
- Number and amount of payments
- Total sales price
Shop for the best deal.
The total amount you’ll pay for your car depends on its price, the annual percentage rate (APR), and the length of the loan. When shopping for the best deal:
- Don’t be fooled by an advertised low monthly payment – if the length of the loan is long and the interest rate high, you’ll be paying more than you may have to.
- Be wary of extremely low promotional APRs. Though you may qualify for particularly low rates by making a large down payment, it may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.
- Look for manufacturer’s incentives. Dealers may offer cash back on specific models.
Never walk onto a car lot unprepared. Before you go, you should already know:
- The model you want
- The options you’re looking for
- Your transportation needs
- How much you’re willing to spend
- How much you can afford to finance
- How much you can spend on a monthly payment
Gain a good understanding of price, models, and features by conducting research online. Be sure to compare models and prices in ads and at dealer showrooms. Visit your bank or credit union before you shop so you can seek your vehicle armed with the knowledge of how much you can spend.
Beware of zero percent financing.
Zero percent financing sounds like an amazing bargain – after all, how can you beat a no-interest loan? Often, you can. Such “deals” frequently come with inflated prices for extended warranties and loan insurance, high application fees, and pre-payment penalties. You may also be required to repay the car in just three years, resulting in a very high monthly payment.
Zero percent financing can be elusive. It is only offered to those with very good credit, as determined by the lender. And it is often not available for the most popular cars and trucks.
Dealer and finance company loans.
Let’s say you’ve done your homework. You’ve found the car you want on a dealer’s lot. You negotiate a price that fits in your budget. Just write the check and get the keys. Right? Not exactly. Next, you’ll head to the finance office. The dealership finance manager will encourage you to use one of their financing options. While not all dealer loans are bad, in most cases, a loan from your financial institution, like the Credit Union, will be preferable.
A word to the wise. Just because you’ve agreed to the price of the car and the terms of the loan, the selling hasn’t ended. The finance manager may try to sell you an extended warranty, paint protection, or a service contract. While each of these has its plusses and minuses, the bottom line is that these extras add to the cost of your purchase. And if you’re offered the opportunity to roll them into the purchase, it means you’re paying more to own the car and interest on a larger loan to pay for it.
Be ready to negotiate.
To get the best price on your new car, you’ll often have to negotiate with the salesperson. Developing your bargaining skills will be worth it in the end, as it can often save you 10-20% of the advertised price. You may be able to negotiate a good price on overstocked or less popular cars.
But remember – a deal isn’t a deal if you end up with a car you don’t want. Sometimes, ordering a car will save you more money than negotiating for one on the lot, as you won’t be paying for unnecessary options or packages. However, you may have to wait weeks, if not months, for it to arrive. Tariffs may also extend the timeline for receiving an ordered car, and the price.
When negotiating the price of the car, focus on the total “out-the-door” (OTD) price inclusive of all taxes and fees; this way, you’ll know how much you’re paying for the car and if you can afford it. Knowing the OTD price can help you compare prices from multiple dealerships to find the best deal. That said, finding the same car with the same options isn’t always easy.
Negotiating the ODT price is preferable to focusing on monthly payments because the salesperson can adjust payment terms to reach your desired monthly payment figure while still maintaining a high total car cost.
Trade in your old car.
Once you have the ODT price, it’s time to discuss your trade-in if you have one. To get the best price, make sure you know your car’s value. Check the Internet to determine its current market value. Try kbb.com and nada.com to gather pricing. You can also get an offer online from Carmax.com and Carvana.com. After that, you have two options:
- Sell the car yourself. You’ll usually get the best price this way but will have to allow for the time it takes to sell, as well as the effort of placing the ad, talking to and seeing a lot of people, and negotiating with buyers. Selling the car yourself also means you open yourself to fraudsters, so extra care must be taken throughout the process, especially when it comes to payment.
- Trade the car in to a dealer. It is often the easiest option, although it is typically not the way to get the best deal. To ensure you get the most from a trade-in, do so only after you’ve negotiated the best possible price for your new car. Don’t be surprised or insulted if the dealer offers you a low amount for your trade-in. Dealerships are businesses, and the less they offer you for your car, the more profit they can make when they sell it to someone else. A low offer also helps them cover the costs of any necessary repairs before reselling the vehicle.
Final thoughts.
Next to a home, purchasing a vehicle is one of the largest financial decisions many people will make, and the process can feel overwhelming. But by understanding your needs and wants, preparing a realistic budget, weighing the pros and cons of buying new, used, or leasing, and securing the right financing at an affordable rate, you’ll be in the driver’s seat. The key is preparation. With research, careful planning, and a clear understanding of your options, you can make an informed decision that aligns with your lifestyle and budget. Whether you buy, lease, or finance, choosing a vehicle should leave you feeling confident, satisfied, and ready for the road ahead.
*APY = Annual Percentage Yield. APY is the annualized rate based on a compounding period of one year. When the deposited money earns dividends and the accumulated dividends starts earning dividends as well, we are talking about compounding. Fees could reduce the earnings on an account. All yields except Certificate yields are subject to change retroactively to the beginning of the month.
Rate bonus is for a minimum of $1,000 monthly ACH Direct Deposit or Agent Net Check into a Farmers Insurance Federal Credit Union Checking Account. Rates are subject to change at any time. No branch or call center access with this account. The national average for this type of account is 0.42% APY, based on rates published in the FDIC Monthly National Rates and Rate Caps accurate as of 01/21/2025.
**APR=Annual Percentage Rate.Rates shown are our Preferred rates based on credit worthiness (FICO® Score), and a 1.00% APR Auto Loan discount for Direct Deposit or full Agent Net Check going into a FIGFCU Checking account (either High Yield Checking or CashBack Checking) in the amount of $1,000.00 (one thousand dollars) or more monthly and Automatic Payment/Folio Deduction as a repayment method to qualify. Rates and terms are subject to credit approval. Other rates and terms are available. Other restrictions may apply. Financing available up to 130% of the Purchase Price, including tax, license, warranties and negative equity on a trade for qualified borrowers. Financing available up to 130% of the Purchase Price for a lease buyout or refinance, excluding tax or license, which were paid at the time of purchase. The Credit Union only lends up to 100% loan-to-value (LTV) for clear title or private party purchases. Please speak with a Loan Representative for complete details and qualifying criteria. Rates and terms are subject to credit approval and are subject to change at any time and without notice. All values are determined by the Credit Union using either vehicle cost or Kelly Blue Book/NADA, whichever is lower. Other rates and terms are available.
