Buy or Lease a Car? (Car Shopping Basics 1/5)

Summary

Joan, a new college graduate, needs a car for her job at Corporate Co. in LA. She should research her needs on Kelley Blue Book, weigh options between leasing (with lower monthly payments but high fees and penalties) and buying (smarter financially but risky with new cars). Certified pre-owned cars offer a middle ground. Stay tuned for financing tips and more resources.

Takeaways

• 😀 Joan is a recent college graduate who needs to buy a car for her new job at Corporate Co. in LA.
• 🚗 Joan should start by understanding what kind of car she needs, using resources like Kelley Blue Book.
• 💰 After selecting a car, Joan needs to decide between leasing and buying.
• 📝 Leasing involves renting a new car for a short period, usually three years, with monthly payments covering the car's depreciation.
• 💡 Leased cars often have lower monthly payments than auto loans and are covered by the manufacturer's warranty.
• ⚠️ However, leasing has drawbacks: requires excellent credit, involves complex contracts with fees, difficult to exit without penalties, and is generally more expensive long-term.
• 🏠 Buying a car is usually the smarter financial move compared to leasing, even in the short term.
• 🚗 Joan should consider buying a used car, as new cars lose 45% of their value within the first three years.
• 🔧 Certified pre-owned cars are a good option, being cheaper than new cars and less risky than regular used cars.
• 📚 The video encourages watching the next installment for financing advice and visiting their website for more educational materials and recommendations.

Q & A

What is the main challenge Joan is facing in the script?

Joan's main challenge is that she needs to get a car for her job at Corporate Co.'s LA branch, but she has no idea where to start.

What is the first step Joan should take to understand what car she needs?

Joan's first step is to use the free research website Kelley Blue Book to understand what car she needs.

What are the two main options Joan has to consider for acquiring a car?

Joan has to decide between leasing or buying a car.

How does the leasing process work in terms of financials?

Leasing involves signing a lease contract that covers the difference between the new car's price and its estimated value at the end of the lease period, with monthly payments and interest.

What are the advantages of leasing a car?

Leasing offers smaller monthly payments than auto loans and includes coverage under the manufacturer's warranty from beginning to end.

What are the four serious drawbacks of leasing a car as mentioned in the script?

The drawbacks are: 1) requiring excellent credit, 2) being complicated with hefty fees for damages or exceeding mileage limits, 3) difficulty in getting out without major fees and penalties, and 4) being inherently more expensive than buying a car.

Why is buying a car generally a smarter financial move than leasing?

Buying a car is smarter because leasing multiple cars over a 10-year period is more expensive than buying one car and using it for many years.

What is the average depreciation rate of a new car in the first three years of ownership?

On average, a new car loses 45% of its value within the first three years of ownership.

What are the issues with used cars that Joan should consider?

Used cars can have serious problems, especially concerning maintenance and repair.

What is a certified pre-owned car and why is it a good alternative to new or used cars?

A certified pre-owned car is less than 5 years old, has less than 80,000 miles, and has undergone an extensive exam to ensure operational quality. It is cheaper than a new car and less risky than used cars.

What additional resources are available for Joan in the next video and on the website?

In the next video, Joan will learn about financing a car, and the website offers more educational materials, free auto loan, and car-buying recommendations.

Outlines

00:00

🚗 Introduction to Joan's Car Dilemma

Joan, a recent college graduate, has landed a job at Corporate Co.'s LA branch but faces the challenge of needing a car due to the lack of public transportation. She is clueless about where to start. The script suggests beginning with understanding her car needs and recommends using Kelley Blue Book for research. Joan must then decide between leasing or buying a car, with leasing being a rental agreement for a new car over a short period, typically three years. The lease contract functions like a loan, covering the car's depreciation, and results in smaller monthly payments than an auto loan. However, leased cars come with manufacturer warranties. Despite the benefits, leasing has drawbacks, including the need for excellent credit, potential fees for damage or mileage, difficulty in termination, and inherent higher costs over time. The script hints at the smarter financial choice being car ownership, especially considering the high depreciation rate of new cars and the risks associated with used cars.

Keywords

💡College Graduate

A college graduate refers to an individual who has successfully completed a course of study at a college or university, earning a degree. In the video's context, Joan is a recent college graduate, which sets the stage for her new life phase and the challenges she faces, such as needing a car for her new job.

💡Corporate Co.

Corporate Co. is a fictional company name used in the script to represent Joan's employer. It signifies the type of organization she is joining and suggests a formal, possibly large-scale business environment where having a car might be more necessary due to the lack of public transportation.

💡Leasing

Leasing, in the context of the video, refers to a contract agreement where a person rents a car for a fixed period, usually with the option to buy at the end. It is a key concept in the video as it contrasts with buying a car and is presented as an alternative option for Joan to consider.

💡Lease Contract

A lease contract is a legal agreement that outlines the terms of a lease, including the payment schedule, duration, and conditions. In the video, it is explained as being similar to a loan, where the lessee pays off the difference between the car's initial and expected future value over time.

💡Manufacturer's Warranty

A manufacturer's warranty is a guarantee provided by the car manufacturer that covers repairs or replacements for defects or issues that arise during the warranty period. The script mentions this as an advantage of leasing, as it provides coverage from the start to the end of the lease term.

💡Credit

Credit refers to the ability of an individual to borrow money, based on their creditworthiness. In the video, excellent credit is mentioned as a requirement for leasing a car, emphasizing the importance of financial responsibility in such agreements.

💡Certified Pre-Owned Cars

Certified pre-owned cars are used vehicles that have been inspected and certified by the manufacturer to meet certain quality standards. They are presented in the video as a middle ground between new and used cars, offering the reliability of a newer car with the cost savings of a used one.

💡Depreciation

Depreciation, in the context of cars, refers to the loss in value of the vehicle over time. The script highlights that a new car can lose up to 45% of its value within the first three years, making it a less financially sound option compared to buying a used or certified pre-owned car.

💡Financing

Financing is the process of obtaining funds to pay for a purchase, often through a loan or lease agreement. The video script mentions that future content will cover financing a car, which is a critical aspect of car ownership that Joan will need to understand.

💡Auto Loan

An auto loan is a type of loan specifically for purchasing a vehicle. It is mentioned in the script as a potential method for Joan to finance her car purchase, contrasting with leasing and highlighting the importance of understanding different financial options.

💡Lease Swapper

A lease swapper is a service or platform that helps individuals get out of their lease contracts without incurring major fees or penalties. The script briefly mentions this as a way to avoid the drawbacks of a lease, suggesting it as a resource for those who might face difficulties with their lease agreements.

Highlights

Joan is a recent college graduate who just got a job at Corporate Co.'s LA branch and needs a car due to the lack of public transportation.

Joan's first step is to understand what car she needs, recommending the use of Kelley Blue Book for research.

Joan needs to decide between leasing or buying a car.

Leasing involves renting a new car for a short period, typically three years.

The lease contract covers the difference between the new car price and its estimated value at the end of the lease.

Leasing has smaller monthly payments than an auto loan due to covering only the car's depreciation.

Leased cars are covered by the manufacturer's warranty from start to end.

Lease contracts require excellent credit and can have hefty fees for damages or exceeding mileage limits.

Leases are difficult to terminate without incurring major fees and penalties.

Leasing is inherently more expensive than buying a car over a 10-year period.

Buying a car is generally the smarter financial move compared to leasing.

Joan should consider avoiding buying a new car due to the high depreciation rate in the first three years.

Used cars can have maintenance and repair issues.

Certified pre-owned cars offer a middle ground between new and used cars, being less than 5 years old with under 80,000 miles and a thorough exam.

Certified pre-owned cars are cheaper than new cars but less risky than used cars.

Upcoming video will guide viewers on financing a car.

The website offers educational materials, free auto loan, and car-buying recommendations.

Transcripts

Meet Joan.

Joan is a recent college graduate who just got a great job at Corporate Co.’s sunny

LA branch.

She’s very excited.

There’s just one problem.

Because her office is far away and out of reach of public transportation, Joan is going

to have to get a car.

Unfortunately, she has no idea where to start.

What should she do?

Well, her first step is simple: understand what car she needs, for which we recommend

the free research website Kelley Blue Book.

Then, assuming Joan has found the car she wants, she’ll need to decide between leasing

it, or buying it.

Leasing is when you rent a new car for a short period of time, generally three years.

As for how it works specifically, well, whenever you lease a car, you sign a lease contract,

which covers the difference between the price of the new car, say $20,000 and what the dealer

thinks the car will be worth at the end of the lease period, say $10,000.

In a sense, this lease contract is a lot like a loan.

You’re forced to repay the balance, in this case $10,000, over a fixed period of time

with interest.

However, because this contract only ever covers the difference between the car’s current

and future value, rather the cost of the entire car itself, it will always have smaller monthly

payments than a true auto loan.

In addition, leased cars also have one other advantage: they’re covered from beginning

to end by the manufacturer's warranty.

Sounds pretty great right?

Well, maybe, but lease contracts come with four serious drawbacks.

One: They require excellent credit.

Two: They’re complicated, and generally charge hefty fees if you ding-up the car or

exceed a maximum number of miles driven.

Three: They’re difficult to get out of without paying major fees and penalties, though some

of these can be avoided by using our recommended lease swapper.

Four: They’re inherently expensive.

This should makes sense.

After all, leasing a bunch of cars over a 10 year period should be more expensive than

buying one car and using it for many years.

Because of these reasons, buying a car over leasing is almost always the smarter financial

move, even in the short-term.

However, Joan doesn’t have to buy a new car.

In fact, Joan should seriously consider avoiding it.

That’s because, on average, a new car loses loses 45% percent of its value within the

first three years of ownership.

However, used cars, the most obvious solution, also have serious problems, especially when

it comes to maintenance and repair.

Fortunately, there is a workaround: certified pre-owned cars.

These are less than 5 years old, have less than 80,000 miles, and have undergone an extensive

exam to ensure they are still operational.

This makes them cheaper than a new car, but much less risky than used cars.

Pretty cool right?

Hopefully you and Joan now understand how to choose between buying and leasing.

Be sure to watch our next video, where we’ll walk you through financing a car, and be sure

to check out our website, where you can find more educational materials and free auto loan

and car-buying recommendations.