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So You're About to Visit a Car Dealership

Most financial advisors would probably agree that holding onto a used car with no payments and only occasional repairs is a better deal than financing a newer, nicer car. But eventually even the thriftiest car owners have to make the decision to upgrade to something newer and more reliable. There are good rules of thumb in looking for a vehicle, but the ultimate decision will depend on your individual circumstances.

The best way to save money is to save up and pay cash for a car, avoiding more debt. Chances are you might not be able to afford a new one anytime soon and if you’re serious about saving money, you probably won’t ever want a brand new car anyway. If you can, save up a few thousand to buy a car in that range. Then save again for several more months until you can trade in that car and add $5,000 or so more for something better. If you’re a committed cash buyer you can keep doing that until you’ve saved up enough to get a 1-year-old car you really want.

If you have no choice but to finance, though, the question becomes whether to go with a used or new car, or leasing.

Some of you might benefit from leasing a car you could eventually buy, but if so you are the exception. A business owner can see some tax advantages in leasing, but that’s a question best answered by an accountant. For most people the downsides (Illustrated on the site of never actually owning the car, the mileage restrictions, the dealer fees and the higher insurance prices make leasing no bargain.

For most people the real comparison is between buying new and used. Buying used has some obvious financial advantages and in most cases will be significantly less expensive than buying new.

In June 2013 Edmunds, the company that created the Blue Book, offered a fair treatment of new versus used by comparing a 2013 Honda Accord EX against a 2010 model. The cash price of the newer model was almost $8,000 higher than the used car. At the end of six years, though, the older car was worth about $6,000 less. That’s still a $2.000 difference in favor of the used car and the longer you own the car the smaller the value difference.

The best deal is probably on a 1-year-old car, since vehicles see their biggest value drop in the first year. Edmunds lets you compare specific models, and the 2013 Honda Accord EX Sedan sells for $25,389, while the 2012 version sells for about $6,500 less. And many dealers are eager to throw in warranties on younger used cars, so you can often get the benefits of a new car without the new car price tag.

In most cases if you can wait until closer to the end of the month you can swing better bargains, because dealers are often under pressure to meet sales quotas. In cars, as in all things, make sure you do your own research ahead of time. The effort will help you save money and feel better about the car you eventually buy.

Published Jan 10, 2014.