Buying A New Car: Is Cash, Lease Or Financing Best?

Oct 25, 2012
Originally published on October 25, 2012 7:22 pm
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Here in the U.S., auto sales are up, and fall is traditionally a big time for car buying. Question is, what's the best way, these days, to pay for that car - financed through the automaker, or through your bank, or simply leased?

To think through the choices, we called Michelle Krebs. She's the senior analyst for the auto information site, and she joined us from Detroit. Good morning.

MICHELLE KREBS: Good morning.

MONTAGNE: So let's just, as an example, family of four, zeroed in on a minivan or a station wagon; want a decent amount of space, good fuel efficiency - how do they go about figuring out the best way to pay for this?

KREBS: Well, first they do a family assessment. They look at their budget. What can they afford? We suggest spending no more than 20 percent of your take-home pay on a car. And that should include not only the monthly payments but also the insurance, the fuel costs and the maintenance. They should ask themselves how long they intend to keep the vehicle. If they're going to keep it a long time, buying it makes sense. If they're not, maybe leasing is an option.

MONTAGNE: Let's get more into talking about how to pay, then, for the car once the decision is made. Does cash still give consumers the best leverage when negotiating with dealers?

KREBS: Well, absolutely, cash can be king. Cash makes a deal very simple. You negotiate the price of the car, and you write a check; and it takes away all of the other things that are negotiated at a dealership. But in some instances, you have to look at how you're going to use your money. There are a lot of 0 percent financing deals. If you're of that mindset of OK, I can do a monthly payment; I'm not going to pay any interest; I could take that money, and either pay off some other bills or invest it somewhere; that may be a better way to go.

MONTAGNE: What about leasing? I mean, these days, especially with fuel economy and technology improving each year, does it make more sense to lease so that you can keep up with all of that?

KREBS: Well, certainly, it fits some people - but not everybody. Leasing has been making a comeback. And if you read the newspapers and look at television ads, you'll see all kinds of great leasing deals. There are some that are under $200 a month. But I think you have to be the ideal person for this. So a business person might be a good person for a lease because they can write some of that off. The person who wants the newest, shiniest vehicle on the road, is a good candidate. Someone who wants the latest technology - and that may include fuel efficiency because we're going to see massive improvements in fuel economy, in the next few years. If you want to wait for that - you know, you need a car now; but you want to get even the better fuel economy, in the next car you buy; it's worth it to wait.

There are some downsides, though. You never own it. You don't own equity in it. It's just like renting an apartment. And what you should do - if you're going to lease - is only lease as long as the warranty is so that then, you don't accumulate any maintenance costs on a lease that would all be covered under the warranty, if you did your lease along the lines of the warranty limits.

MONTAGNE: And Michelle, what about the best deals, in terms of leasing?

KREBS: Well, we're seeing a couple areas where leasing is really strong. The midsize car segment - like the Toyota Camry and Honda Accord - there's some really aggressive deals there because it's a very competitive market. And also, on the technology side, things like the Chevrolet Volt and the electric Nissan Leaf have very good lease deals because the price tags are very hefty; and people don't want to buy, especially since that's a new technology. And so the automakers are subsidizing, and offering consumers very attractive leases on those high-tech cars.

MONTAGNE: Michelle Krebs is a senior analyst for the automotive information site Thanks very much for joining us again.

KREBS: Thank you for having me again. Transcript provided by NPR, Copyright NPR.