Cashay logo

Empowering your money

Buying a Car: Factors to consider

At a glance:

  • Do you really need a car? The cost of ownership

  • Buy or lease?

  • Buying a car: New or used?

  • How to get the best deal on a car

  • Summary of buying a car

  • Practical ideas you can start with today

Buying a car or truck involves some of the same steps as buying a home. There's financing to deal with, insurance and warranties, and there's the question of whether to buy used or new.

There is also the question that more and more young people are asking, which is: "Do I even need a car?"

One's means of transport may be the biggest single purchase made. So there are some important factors you should consider before you begin searching for a vehicle.

Do you really need a car? The cost of ownership

The question of whether you need a car in the first place may seem silly to some, but it is a valid one depending on factors like the state of the economy, where your job is located, where stores are located, one's finances, and the availability of cost-effective alternatives.

In place of owning their own vehicles, many non-owners use alternatives like these:

  • Public transport

  • Bicycles

  • Carpooling

  • Sharing

  • Community car rental

It helps to think not only of the logistical factors, but also the "true cost of ownership of a car," which means everything that you ultimately pay over the time that you own it.

The following information is helpful not only for new cars but also used ones. Let's look at it from the standpoint of not yet owning the car, but preparing to own it.

The true cost

Although one car you like might be less expensive to buy than another one you like, it may also carry higher ownership costs over time.

This is important to remember when you just can't decide between two choices and you need a little nudge to move you in one direction.

You might save $1,000 or so by going with one of the two, but the purchase price is only the most immediate and obvious price.

Think of three, four, or ten years down the road. Is the insurance on one more expensive than the insurance on the other? How will the make and model affect your gas consumption? Will there be special maintenance needed? How does the depreciation compare? Does one of them get tax credits?

In a photo from Thursday, Dec. 28, 2017, people walk through the Taylor Chevrolet showroom in Taylor, Mich. At car dealerships, they call it the payment walk, when someone with a low credit score wants to buy a new car but gets walked to the used lot because they can't qualify for a new-car loan. As the Federal Reserve continues its string of interest rate increases, auto dealers and industry analysts say more people will be taking the walk because interest rates, and monthly payments are on the rise. (AP Photo/Carlos Osorio)
People walk through the Taylor Chevrolet showroom in Taylor, Mich. (Photo: AP Photo/Carlos Osorio)

What is involved in the true cost?

You might find that you can afford to buy the cheaper one but not afford to own it as time goes on.

Here are the main factors to consider when thinking about the true cost of ownership of a vehicle:

  • Price you paid

  • Taxes

  • Fees

  • Fuel

  • Gas mileage

  • Insurance

  • Maintenance

  • Repairs

  • Tax credits

  • Financing (interest costs)

  • Depreciation

  • Trade-in value

  • Dealer service contract

Online calculators can help you plug in the variables above to arrive at an estimate that spans a certain time period.

Those who are sitting on the fence regarding whether to have a car or not can consider the true cost of ownership versus alternatives to having a car.

Buy or lease?

For most people, the answer to this question will come down to dollars and cents.

To those for whom money isn't as much of an issue, there are other things to ponder.

A list of advantages and disadvantages can help you determine whether to buy or lease.

For those who are still on the fence, here are some more things to think about:

How do you treat your cars?

Want to repaint, customize, or add racing stripes? Then expect to have them undone, and then expect a bill in the mail. The car doesn't belong to you while you lease it, so you can't make changes to it.

Are you tough on your cars? Or irresponsible? You will be responsible for any damages and any wear and tear that is deemed excessive. Leasing does not let you off the hook for these.

Are your finances stable?

Your financial situation should be stable if you want to lease, because you will be committed to your auto. Ending your lease early will cost you extra, and you may also have to pay all the remaining payments.

Ask yourself whether you might be hit soon with high healthcare costs, mortgage costs, or other expenses that could jeopardize your ability to make your lease payments.

How much do you drive in a year?

Estimate how much you drive in a year. Is it more than the amount specified in a lease, meaning between 10,000 and 15,000 miles?

If it is, you'll be hit with excess mileage charges when the lease ends. Can you reduce your mileage in other ways, such as by biking, walking, or bussing? If not, consider those excess mileage costs and whether they would be a hassle for you.

How is your credit?

You need a very good credit rating in order to lease. One reason for this is that the leasing company bears a lot of risk when it offers you the lower monthly payments.

If your credit is poor, you may pay a higher lease rate (which is factored into your monthly payments). Do you know your credit score?

How do you really feel about leasing and buying?

Some people just like to own, so buying appeals more to them. They can build up some equity, which owning allows them. Leasing doesn't build you equity — at least not until you decide to buy at the lease end, if you do at all.

Another plus for buyers is that eventually, they can stop making payments and own the car outright.

On the other hand, some people would rather not have any ownership. It is the convenience factor that they like and are willing to pay for.

That convenience includes a lower chance of needing repairs and a high likelihood of having warranty coverage for the duration of the lease.

Buying a car: New or used?

The question of used or new comes down to price for most people. That can be short-sighted in some cases, depending on your priorities.

Here is a quick review of the advantages of each.

Advantages of buying new

You can get it the way you want it. You've got a good chance of ordering a new car with all or most of the options you want on it. You can't do that with a used car.

Less of a history. No dings, scratches, wear and tear, or accident history. And, if it's important, that new-car smell.

Better safety. New safety features are often mandated by law, meaning you are more likely to find them in new cars than used ones. And existing safety features tend to improve over the years.

Better technology. You'll get the latest gadgets, which can make your driving easier.

New warranty. You get an untouched, unused warranty that you don't have to pay extra for.

Better fuel efficiency. Fuel efficiency tends to increase over the years as technology improves. Some of this is due to government mandates.

Maintenance included. You may qualify for free scheduled maintenance with a new car for a certain time period or mileage period. This is more likely to be true with luxury models, however.

The feeling of having a new car. For some, this alone is worth the money. It speaks of having "arrived."

Advantages of buying used

Price. The biggest advantage of buying used? It costs less. And there's no painful depreciation during the first year.

Insurance cost. Insurance on a used vehicle tends to cost less than it does on a new vehicle, all other factors considered. The older it is, the more you can save.

Selection. You can't buy a new 1968 Mustang or anything else that's no longer made, but these are available on the used-car market.

You can still get a warranty. Though this is not an advantage of a used car over a new car, it is an advantage all its own. You can still qualify for warranties or service plans.

You will note that the "new" side has more pros listed than the "used" side. That's not to say that buying new is always better. That's why you must ask yourself what your priorities in a car are. A used one may have all the advantages you need.

How to get the best deal on a car

Negotiating for a good price on a vehicle ranks up there with getting a root canal for many.

But learning to negotiate can save you a lot of money.

First, though, get the preliminaries taken care of. Identify the car you want, arrange financing, and locate some sellers. Know what add-ons you might want.

By the time you get to negotiating, the price should be the only thing not settled on.

A point to remember

Even if a vehicle is advertised with a "no haggle" price, there is still sometimes room to haggle, so it is worth considering.

Know the value of the vehicle you're negotiating

This can work in your favor if the salesperson is asking a price that's higher. Consult a source such as the Kelley Blue Book for values. Check more than one price guide (such as Edmunds).

The prices involved

When you negotiate, you want to pay close to the wholesale price, which is typically what the dealer paid for it. The dealer will want to stay close to the retail value for maximum profit.

There will also be the "blue book value," which will not be listed and which will most likely be somewhere in the middle.

In case the dealer's cost isn't apparent or you can't get it from the dealer, you can find it online on sites like and

How it begins

The dealer will likely ask you how much of a monthly payment you can afford to pay.

Because dealers have ways of arranging financing, they know how to squeeze extra dollars out of you even while staying within your monthly payment range.

This is why experienced car-buyers put off telling the dealer how much of a monthly payment they can make until after they have settled on a price.

Don't go first

Experienced negotiators wait for the dealer to name the first price. That way, they can go lower, something they probably couldn't do if they were the one to name the first price.

The attitude

Cultivating an air of detachment also works in your favor (in other words, be ready to walk away if need be) because a salesperson who sees that you are attached to a car has a lot of leeway with you.


Knowledgeable negotiators recommend not bringing your trade-in into negotiations until you have first agreed on a price for the car.

Take control

It's important to be the one in control of the negotiations. That might mean telling the dealer you need to go home to think about it. Dealers expect this.

They will likely call you over the next few days to sweeten the deal, either with a lower price or some free add-ons.

Compare prices too

Get quotes from several dealers and bring them with you to negotiate. Using them can make dealers compete for your business — they might match other offers.

In closing

Once you have agreed on a price, you will get the sales contract. This contract will list additional costs such as sales tax, document fees, and perhaps service fees.

Know about these beforehand so that you will have a more accurate price that you will ultimately pay.

Summary of buying a car

Given how fast a car depreciates in value, you want to make sure you get your money's worth.

Learn the best tactics for getting the best deal. Start your search even before you are ready to begin looking.

Estimate the costs of ownership. New and used buyers are often pressured to buy more than they really need, and thus they may get stuck with a vehicle that they eventually owe more on that it is worth.

Practical ideas you can start with today

  • Estimate the cost of ownership of a vehicle.

  • Decide on a realistic price range for a vehicle and stick to it.

  • Learn the pros and cons of leasing, and decide if that's a good option for you.

  • Obtain financing on a vehicle.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

Read more information and tips in our Cars section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook