Before you buy a car, consider all the costs to determine what you can afford.

Based on your situation, what type of vehicle is best for your needs now and in the next few years? Will a 2-door car do the job, or do you need a 4-door sedan, a 4-wheel drive, or maybe a pick-up truck? Are safety and fuel economy important to you? Options such as a sunroof, leather seats, and all weather floor mats can be great, but  can add a lot to the price of the car.

Reference guides such as Kelly Blue Book and Edmunds can help you determine the value of a vehicle. Keep in mind that some optional features may add substantially to the purchase price but not increase the car’s value when it comes time to sell. Visit reliable websites to compare models and features.

Remember, almost all cars depreciate (go down in value) over time. The value of a new car can drop hundreds or even thousands of dollars the day you drive it off the car dealer’s lot. You may be able to save a substantial amount by finding a used car in good mechanical condition.

Buying a car means paying for it with cash and/or a loan. After you finish making the payments, you own the vehicle and can sell or trade it. With leasing, you sign a contract and make monthly payments to have use of the car for a specific length of time. After making all your lease payments, you return the car to the dealer. You own nothing and may even owe the dealer more money for any excess mileage or damage. However, monthly lease payments are often lower than loan payments.

After you pay your other bills, how much money do you have left to pay the ongoing costs of car ownership? This includes gas, insurance, maintenance, registration  and other expenses. Remember, over the years you own the car, there may be times when your income changes. Try to keep your car costs within a range you can afford through the ups and downs.

You’ll probably need some cash up front to buy or lease a car. This is known as the down payment. Have you set aside the amount you’ll need? The dealer or a loan officer at your financial institution can give you an idea of what you’ll need.

If you get a car loan, you’ll have a monthly payment to the lender. Keep in mind that the longer the term, or how long you pay the loan, the lower your payment. But a longer term also means you will pay higher monthly interest payments. That means you’ll end up paying more for the car than you would with a shorter term loan. Make sure you know what your total costs will be and decide if the vehicle seems worth it to you at that price.

Living without a car: The pros and Cons

Consider the benefits and drawbacks before you buy a car. If you decide to get a car, be realistic. It’s a major expense and responsibility, so research, think it through, and take the process step by step.


MAJOR SAVINGS – Owning a car is a major expense. You can save a lot of money if you really don’t need a car or can manage to live without one. By not owning a car, you can avoid saving for a down payment, making monthly car loan payments, and all of the other costs that go along with car ownership such as insurance, gas, maintenance, and repairs.

MULTIPLE OPTIONS – There are definitely cheaper ways of getting yourself from here to there. Consider taking public transportation if available in your area; getting a moped; or, riding in a carpool.

A HEALTHY CHOICE – If you can walk or ride your bike, you’ll save money and get some free exercise. Having one less car on the road cuts back on traffic and air pollution.

RENT WHEN YOU NEET TO – Even if you don’t own a car, you can rent a car now and then when you need one.


REDUCED CONVENIENCE – Without a car of your own, you may not always be able to travel exactly where, when, and how quickly you want to.

MISSING THE ‘FUN’ – Millions of Americans are in love with their cars. There’s no denying it: having a car of your own can be fun.

smiling family taking a selfie on a car

Leasing: Benefits and drawbacks

This comparison can help you decide if leasing a car is best for you.

Potential BenefitsPotential Drawbacks
A new car
Consider leasing if you enjoy having a new car with the latest features every few years — even though you won’t actually own it.
Lower monthly payments
Monthly lease payments are often lower than loan payments because you’re only paying for the depreciation of the car during your lease — not for the car’s full value.
Easy transition
You’ll avoid any trade-in or selling hassles when it’s time for another car.
Fees for damage
If you lease, it pays to maintain your vehicle in top condition. You may have to pay the dealer extra for even minor damage.
Excess mileage charges
Your lease agreement will specify how many miles are included. At the end of the lease, you may be charged 15 to 25 cents or more for each mile above this limit. You can usually pay for extra miles ahead of time at a lower rate.
Fee for early termination
By signing a lease, you are making a commitment to pay for a certain period of months. Dealers typically charge a high fee if you end the lease early.

Vehicle leasing tips from the ftc

Many dealers and other lessors offer vehicle leases. Before you decide whether to lease or buy, shop around, ask questions, be sure you understand all the facts, and consider these tips from the Federal Trade Commission (FTC):

smiling woman driving
  1. Shop as if you’re buying a vehicle. Negotiate all the lease terms, including the price of the vehicle. Lowering the lease price will help reduce your monthly payments. Get all the terms in writing.
  2. Learn the language of leasing:
    • In a closed-end lease, you return the car at the end of the lease and “walk away,” but you’re still usually responsible for certain end-of-lease charges, such as excess mileage, wear and tear, and disposition.
    • In an open-end lease, you pay the difference between the value stated in your contract and the lessor’s appraised value at the end of the lease.
    • Lease inception fees are payments you must make when the lease starts, and may include a down payment, security deposit, acquisition fee, first month’s payment, taxes and title fees. Ask for a list of all charges due at lease inception. You may be able to negotiate some or all of the terms.
    • The capitalized cost is the price of the car for leasing purposes plus taxes and extra charges like service contracts and registration fees.
    • The capitalized cost reduction is similar to a down payment. If you’re trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on. The trade-in credit may reduce your down payment or monthly payments.
  1. Ask whether extra charges will be assessed for excessive mileage, wear and tear, disposition and early termination, and find out the amount of these charges. Most leases allow you to drive 12,000 to 15,000 a year; if you put on more miles, expect a charge of 10 to 25 cents for each additional mile. You may think the ding in the door or coffee stains on the upholstery are normal wear and tear; to the lessor, it may be significant damage. Check out penalties for an early return; expect to pay a substantial charge if you give the car up before the end of your lease.
  2. Make sure the manufacturer’s warranty covers the entire lease term and the number of miles you’re likely to drive.
  3. Consider “gap insurance” to cover the difference — sometimes thousands of dollars — between what you owe on the lease and what the car is worth if it’s stolen or totaled in an accident.
  4. Before you sign the deal, take a copy of the contract home and review it carefully away from any dealer pressure. Be alert for any charges that were not disclosed at the dealership, like conveyance, disposition, and preparation fees.
  5. Federal law requires lessors to provide lease cost information before you sign the lease. Some dealers may be willing to provide the information during your shopping process. If the dealer declines, consider shopping elsewhere.

For more information about buying or leasing a car, visit the FTC’s website.

new vs. used

This comparison can help you decide if a new or used car is best for you.



The purchase price of a car is higher when the car is new.

Depreciation is when the value of a car goes down due to wear and tear over time. Almost all cars depreciate. A new car depreciates the minute you buy it — 15% or more. The value can drop hundreds of dollars the day you drive it off the car dealer’s lot.

Insurance, taxes, and registration fees for a car are higher when the car is new. Used cars are generally less expensive to insure.

New cars typically come with a comprehensive warranty that covers the cost of repairs and labor for up to 3 to 4 years or 36,000 to 48,000 miles, whichever comes first.

With a new car you can often have the flexibility to order a car with the features and options you want.

A new car should have no previous wear, mechanical problems, or body damage.

Used cars have a lower purchase price and can be a much better value overall. If you purchase from a private seller with no dealer in the transaction, you’ll probably get a better price — but if the deal turns out to be a bad one, the seller usually will not allow you to return it.

Used cars continue to depreciate, but cars typically depreciate the most during the first 3 years.

A loan for a used car may carry a higher interest rate than for a new car. Also, cars more than seven years old might not qualify for financing.

If you purchase from a private seller, your car may not carry a warranty. A dealer may or may not offer you a warranty on a used car.

You can’t “order” a used car with the features and options you want, and waiting for the perfect match could take months. But with a used car you may get more features for the money.

Used cars may have higher maintenance costs. To reduce this risk, before buying a used car:
• Review all maintenance documentation.
• Inspect the car during daylight hours.
• Test drive in highway conditions.
• Consult a service such as Carfax to determine if the car has been in an accident or otherwise damaged.
• Have a mechanic inspect the car before you pay.

Note: A good middle ground between new and used is a “certified pre-owned” car. These have been checked out by a dealer and come with a warranty.