The decision to
buy a new vehicle instead of a used one
requires that you consider the following:
Purchase price.
A new vehicle will clearly cost
you more than a used vehicle.
Based on the depreciation rate
chosen average, high or low the
price of the used vehicle is
obtained by subtracting
depreciation expense from the
price you enter for the new
vehicle.
Depreciation.
Some vehicles depreciate faster
than others. The slower the
depreciation rate of the vehicle,
the higher its resale value.
Operating costs.
A used vehicle is likely to
require more maintenance and
repair than a new one. Also, fuel
consumption may be less efficient.
Years of
ownership. The longer you own
the vehicle, the lower the
average annual cost, as financing
and operating costs are spread
out over more years.
Financing cost.
Interest rates for new-vehicle
loans are generally cheaper than
for used-vehicle loans.
The analyzer
shows whether it is cheaper to borrow
money to buy a vehicle or to pay cash.
As a general rule,
if the interest rate you earn on
your savings is lower than the
after-tax cost of borrowing, it
is cheaper to pay cash.
However, you face
a potential loss of financial
flexibility. For example, you may
have depleted your rainy-day
funds as a result. The risk of
not having an adequate emergency
fund may be one you are not
willing to accept in exchange for
paying cash.
The cost of owning a car
goes well beyond the sticker price and
also includes all the expenses of keeping
that car running year after year.
Insurance premiums, a vital expense
element, can account for more than one
fifth of ongoing car costs.* The exact
amount you pay depends on a range of
factors, including:
the design of your
car in terms of safety and
repairability,
as well as the
likelihood your model will be
stolen.
This analyzer
shows which loan saves you more by
comparing the loan term and interest rate
of each loan.
For two loans with
the same interest rate, the
monthly payment is larger for a
loan with a shorter term.
However, you pay off the loan
sooner and have a chance to
invest the savings in an interest-paying
account.
Interest earned
from investing the difference in
monthly payments is included in
the analysis.
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The size of your
monthly payment depends on loan amount,
loan term, and interest rate.
Loan amount equals
vehicle purchase price minus down
payment, rebate (if applicable),
and net trade-in value.
Net trade-in value
is equal to the vehicle trade-in
value minus the amount owed on
the vehicle.
This analyzer
helps you to decide if leasing is
preferable to borrowing to buy a vehicle.
The analyzer
assumes you do not exercise the
purchase option at the end of the
lease term. With a vehicle loan,
you will own the vehicle when the
loan is paid off.
Your average
yearly cost of owning a vehicle
declines sharply after the first
few years. This is due to smaller
depreciation and financing
expenses.
Your first year of
a lease term is the most
expensive since you pay extra
lease-financing charges. As a
lessee, you do not incur
depreciation expenses.
This analyzer
calculates the cheaper option: buying a
vehicle and owning it for a long period,
or selling and buying a new vehicle more
often.
Vehicle
depreciation expense will affect
its book value. If you owe more
on a vehicle than you receive in
sale proceeds or trade-in value,
you must add that additional
amount to the down payment on the
first vehicle.
For an owner that
buys more than one vehicle in the
period, we assume that vehicle
sale price, down payment,
depreciation rate, and loan terms
are constant.
Interest earned
from investing the difference in
monthly payments is included in
the analysis
Consult a
Specialty Advisor
This section is intended to
provide you with information of a
general nature. The information
presented is not intended to
advise you of strategies
applicable to your specific
situation, but rather to
highlight issues for your
consideration.
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