Buy or lease? New or used car?
What's the difference?
One of your bigger financial commitments one day may be getting a vehicle of your own. Even beyond choosing the make and model that's right for you, you need to decide whether you want to get a new or used vehicle. If new is for you, you also have to determine whether to buy or lease. What's the best thing to do?
Buying A Car: Finance Or Cash
You can buy a car either in cash or through a bank, credit union or other lender by making monthly payments. Of course, if you have the money, you may want to pay in cash so that you don't have to pay interest on a loan. If you decide to finance your vehicle, you'll have to meet certain obligations from the lender, like down payments, interest rates and meeting monthly payments.
Financing a car means paying a lender monthly payments plus interest on that loan, so you end up paying more for it than you would if you paid cash. If you finance your car, your lender will most likely require comprehensive and collision coverages as part of the loan agreement.
Leasing involves paying to use the vehicle for a period of time. The leasing company or financial institution actually owns the vehicle, not you. You'll still need to meet the same obligations as you would if you buy your car through a lender. Once you complete your lease payments, you'll have the option to return the vehicle to the lender or buy the car from the lender. Also, most lease agreements cap the mileage you can put on the vehicle.
Are you asking yourself, "Well, if I have to buy the car from the lender after making those payments to lease it, why don't I just buy a used car to start with?" That's a very good point. The difference is that after leasing it, you know the car's history, how it's been maintained and whether or not it's a good fit for you. When buying a used car, you're relying on your mechanic (who you'll have to pay for the service unless you have a friend or family member who's a mechanic) to spot any problems with the car. But let's not get ahead of ourselves; read on for more about buying a used car.
Buying Used Cars
Buying a used car is one way to save money. Whether you're looking to bid on a car at an auction, buy one from a private party or go through a dealership, it's important to do your research on the car, as well as determine how much you're willing to spend.
Before you buy your used car, ask yourself:
- What are the prices for similar makes/models? Research other used cars with similar features. You might save more and get more features if you go with another model that's similar to your first choice.
- What's the history of the car? Ask the seller about previous maintenance issues with the car and any maintenance that may be needed in the near future on the vehicle beyond oil changes, etc. Also ask if the car has been in a previous accident or if it has been in a flood. The National Insurance Crime Bureau's (NICB) VINCheck and CARFAX have an online database where consumers can search and review previously damaged vehicles. Cars can be buffed up to look great, but that shiny new paint job or new floor mats and carpeting may be used to distract you from previous body damage, water damage or other little surprises. Don't get played; do your research.
- Where's the title? A vehicle's title is a legal document, usually issued by a state Department of Motor Vehicles, which establishes who is the legal owner of a vehicle. Your state Motor Vehicle Department can help you determine the car's title history and any notations such as "salvage" (meaning that the vehicle was so badly damaged in an accident that the cost of repairs at the time was more than the vehicle was worth) or "rebuilt" (meaning that someone bought a salvaged vehicle and repaired it to the point where it could again be titled and used or sold). If you see the words salvage or rebuilt, it's best to run in the opposite direction.
- What are the safety features? Many insurers offer discounts for features that reduce the risk of injuries or theft. Check out the Insurance Institute for Highway Safety (IIHS) top safety picks.
- Is there a warranty? Some used cars may be under the factory warranty. You can contact the manufacturer to make sure you can use the coverage. Be sure to have the car's VIN, or Vehicle Identification Number, available when you make the call.
- What's the mileage? The car's value is often determined by the number of miles on the odometer. If you're looking to buy a high-mileage car, have a mechanic inspect the vehicle very carefully for any parts that may have become damaged over the lifetime of the car.
If you end up buying an older car, you might not want to get collision coverage since you might pay more for the premium than the car is worth. It's a balancing act, though; if the car is totaled and you don't have collision coverage you'd have to replace it yourself.
If you still need help with your research, GEICO offers a Car Buying Service that will help you with information, tools, and a low upfront price. The Car Buying Service can help you learn about other resources you can use to buy a car the easy way.
The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.