How to Buy a Car

A car is one of the most expensive things a person will buy in his or her lifetime. However, unlike a house, cars are not an investment. With very few exceptions, cars lose their value as soon as they roll off the lot.

Before buying a new or used vehicle, ask yourself why you need one. Would a tune-up and an oil change on your old car suffice, or is your current vehicle not safe? Make sure you are making this purchase for the right reasons.

Not only does the vehicle itself cost money, but insurance and maintenance costs should be figured into your budget as well.

1. Use The Motley Fool's online calculator to determine how much you can spend on a car without breaking the bank. You will need to know the value of your trade in, how much you will fork over for a down payment on your new vehicle and a potential loan term.

2. Talk to an insurance agent about costs associated with purchasing a car. There may be breaks for installing an alarm system or keeping your vehicle under a certain amount of miles every year.

3. Unless you are a mechanic yourself, expect to spend anywhere from $25 to $100 every 3,000 miles for basic maintenance, plus $400 to $1,500 every other year on substantial tune-ups.

4. Rising fuel costs could be a major factor in the type of vehicle you purchase. Expect to spend a minimum of $100 per month on gasoline, unless you opt for a more fuel-efficient car, like a hybrid.

5. Other fees to consider are licensing and registration, which vary from state to state. 

Buying a new or used car is usually a matter of budget, but consider the following as well:

1. Initial Costs. Used or "pre-owned" cars have lower purchasing prices, licensing and registration fees, taxes and insurance costs.

2. Operating Costs. New cars have lower operating and maintenance costs due to getting better mileage than used cars and requiring less frequent repairs.

3. Safety and Reliability. New cars have the latest safety features and tend to be more reliable. If considering a used car, make sure you know its history as it may have problems that you will not learn about until you've taken it off the lot.

4. Warranty. New cars come with a warranty that is factored into the purchase price. While you can purchase a used car warranty, it will cost you extra over the purchase price.

5. Environmental Impact. New cars are less likely to release harmful emissions than used cars. If pollution is a concern, look into hybrid or electric vehicles, both new and used.

Purchasing a certified pre-owned car is essentially like meeting in the middle between new and used. These vehicles come with a dealer guarantee and an extended warranty of three years plus. 

While certified pre-owned cars cost more than a used car, they are considerably less than new car costs.

Leasing can be more expensive than buying, unless you drive under 12,000 miles a year or require a new car every three years or so. There are a few factors to consider when making this choice:

1. Cost. Buying a car requires more money upfront, so you will either need the cash on-hand or an auto loan. With a loan, once you've paid it off, the car is yours. For a lease, you pay less upfront, but your monthly payments will be high. 

2. Mileage Restrictions. With a car lease, you mileage will be limited to 12,000-15,000 miles a year. If you go over that restriction, you pay for each additional mile.

3. End-of-Lease Terms. At the end of the lease, you are required to pay for what the dealer deems to be "signs of excessive wears and tear." Despite how much you've paid over the course of the lease, you won't own the car unless you buy it out.

When you've decided to go with a new or used car, check out Mahalo's pages on these very topics:

How to Buy a New CarHow to Buy a Used Car