Best way to buy a newer car - Cash, Lease, etc?

We are looking to replace two of our vehicles with newer ones (2019ish+). I've never bought anything newer Iike this so it's a bit of uncharted territory. 
 

I've always bought and paid cash in full. But seeing that some guys here who I consider very smart have done otherwise, I wanted to know if I'm missing something. 
 

is there any advantage to a lease?  Buying new?  Financing used?

related, I've always thought the best deals were to found buying from a private party.  But are there advantages in buying from a used car lot?  Used car from a dealer?  (If so, should I make sure it's the same marquee as the vehicle or better to be different?). 
 

i have heard that sometimes cpo vehicles have amazing warranties - I'm willing to pay a little more for that but how to find them?

It's all about the math. Especially leasing. Leasing is basically fixing the sale price of a car that you know that you only want 2 or 3 years. And then repeat. If you own for a long time, leasing isn't great. 
 

I submit that it mostly depends on your interest rate. If you can get a low rate that you can beat with investments/inflation, I would probably finance

Yep, gotta look at the rate they give you on financing vs what a guaranteed rate account like a CD or a high yield savings account pays and go from there if you have the cash on hand.

Having "new vehicle purchase" level of cash just sitting in a checking account is not super great from a long term financial plan, at least pop it into a high yield savings account.

Leasing can do real well on high end (beat the depreciation), low end (mfg wants to move them, no one buys base models), and niche vehicles like EVs (sweet deals to move units to pad sales).  

A good place for a leasing education...

https://leasehackr.com/

Also, the site is very California -centric which will work well for you. 

In home ownership terms...

Leasing is renting.

Financing is Mortgage.

Paying cash is paying cash.

But, if you want to be a short term resident (most leases 3 years) then renting can be better than buying.  

Often there are purchase incentives like state EV incentives, or manufacturer discount incentives that when added to a lease (rent) the the monthly outlay become really small.  But, in 3 years the rental is over and you own no car.  

I'm biased but I would say smart people don't always make smart choices. Cash is the way to go. 

This is all what I had thought.  I did speak to my friend who is a salesman at a new car dealership who said that financing could get a better price vs all cash but just pay it all off for the first payment. 
 

Yes. Cash is not king when buying cars. The dealers get incentives from lenders to generate loans, so it is far more beneficial to them to not do cash deals.

Just went through this on replacing my expedition. We didn't want to spend car money and deplete investments, so we picked our acceptable monthly payment and put cash down to get there with financing. We expect to own for 10-15 years (ideally) so leasing was out. 
 

We landed on a 2021 Expedition, and I would absolutely have preferred to buy from a private party - but maybe 1 in 30 cars posted across the internet seemed to be private sellers so we ended up with a dealer vehicle. It went fine - but we brought our own financing from a local credit union which beat the dealers rates too. 

ddavidv said:

Yes. Cash is not king when buying cars. The dealers get incentives from lenders to generate loans, so it is far more beneficial to them to not do cash deals.

A year ago that was the case here, but at this point they'd rather make a sale than lose one over a cash surcharge 

I'm in the same position as you, never have I done a dealership purchase for myself or gotten one for more than the cash I have on hand, but I think it was on here that I heard dealerships make money from 3 sources:

1. trade-in

2. financing

3. the actual price 

If you take away the other options, you'll get it with the third. Give them the financing avenue (esp if you can get it 0 percent for a couple months intro rate) and then pay it off immediately after the sale?

When purchasing from the dealer:

-Decide what vehicle you want if possible before going in, or at a minimum narrow down your requirements.

- review incentives to determine what give you the best total price (purchase + financing). On our last new car we took the rebate that was offered if financing with Kia, then refinanced at a much lower rate with the credit using before the first payment was even due  

- DO NOT tell them a monthly payment number. Only talk total price, until you are satisfied with new and trade in prices and its time to pick a length for the loan. 

- When asked cash or finance, always say finance. If feeling guilty, say finance as long at they their offer is good enough.

- negotiate price for the new car and trade in separately. 

- Use online services like true car and any employer discounts. I've used true car to get online quotes, and kept them as backup to introduce if the dealer doesn't seem like they are going to get to the same price. 

- Dealers sometimes have other tools to adjust price. The kia dealer added a "discretionary" amount of $1,000 to our trade in to close the deal. 

- dealer financing (if not part of a special offer) can be through multiple banks. They are not required to give you the best rate, so they will offer the one that is best for them. Ask to see the screen. They also may have some ability to offer better rates if you push.

- Final point: Everything is negotiable, purchase price, trade in, financing (interest rate on purchase, mainly down payment on lease), and everything offed in the finance office (extended warranties, protection, maintenance, etc. ) whether you choose to buy or lease. 

jfryfry & ddavidd,

I've bought several new Mazda's and I've been offered either a low interest rate or a cash incentive...I take the regular interest rate with the cash incentive.

Mazda gets a reward from their lender for issuing a loan after its third month of existence and no matter what $100 in interest is required.

So, I work out what the periodic carried interest is and make payments such that the loan is paid off at the end of month three to help the dealer and have paid $100 in total interest since it's required no matter what.

My preference has always been to buy the vehicle outright....no financing. I have however, bought a car without indicating how it was being paid for until the paperwork was done and then I put it on my credit card. Dealer was pissed, but they had jerked me around, so I retaliated.

In reply to DeadSkunk (Warren) :

Wonder what their total was for fees to the credit card company? That had to hurt 💰

The local for dealer has a sign that says they don't accept credit cards for vehicle purchase. 

I guess it depends on your needs. The preferred choice can vary based on time conditions and location. 
For me I have gone lease on my last 4 cars, I did buy one out at the end of the lease and traded it in on another lease a couple months later. Where I live the environment is AWFUL for cars. The road salt is brutal and you aren't going to have a car that is 15+ years old as a daily driver. So if you want to have a new car every 3-4 years leasing at least fixes the price, you don't have to worry about market fluctuations. It may not be the cheapest but if it isn't it's darn close. 
For my secondary car I don't want to spend as much money so I drive an older vehicle. Typically I paid cash for those but my current one I financed (it just felt better to have more $ in reserve and invested and have a monthly payment). I won't say it's the best plan but sometimes how it makes you feel has to trump the math if it is very close. 

A lease is just a long-term rental.   It's a way of deferring the big sticker price to a time when you're hopefully in a place where you can pay cash for the used price.  You're paying for the depreciation and they give you a guaranteed buy price at the end of the lease.  That one is pretty easy to calculate.  Take the monthly cost of the lease times 24 months and subtract it from the new car price (or add it to the buyout price). to compare if it's a financial deal you're willing to take.  The big downside I find is that you can't really modify or damage it, and you have to stay within sometimes-strict mileage limits.  If you take it back with a dent, and aftermarket radio, or too many miles, be prepared to write a big check.

Financing is the best way to pay double what the car is worth only to have it be mostly worthless by the time you pay it off.  It's sometimes the only option, but I would only ever use it if you have an alternate investment that typically pays out more interest than you are paying on the car.  For instance, if you have an investment account making 5% growth, it doesn't make sense to liquidate that to pay cash for a car that could be financed for 4%.

Cash is my favorite way, but I'm not loaded, so my cars are usually older and cheaper.  A dealer is sometimes less likely to bargain on cash because they get financing kickbacks from the lender, but I always buy from FBM or CL

In reply to Curtis73 (Forum Supporter) :

Imagine returning a 2024 model year car from a lease in the year 2027 with an aftermarket radio lol

jfryjfry said:

I've always thought the best deals were to found buying from a private party.  But are there advantages in buying from a used car lot?  Used car from a dealer?  (If so, should I make sure it's the same marquee as the vehicle or better to be different?). 
 

i have heard that sometimes cpo vehicles have amazing warranties - I'm willing to pay a little more for that but how to find them?

 

Focusing on the words above...

How is that your neighbors, who don't seem to make more (or much more) than you all seem to have new cars?  They lease (rent) and many of them have HUGE rental payments!   Most modern leases are 2 yr, 3yr, 4 yr and most leases allow 10k-15k miles per year.  The 3 yr is the most popular.   A a rule of thumb it is really a bad idea to lease (rent) a car longer than the manufacturers warranty.  If so, you could find yourself paying out of pocket to replace a transmission on a car you rent.  And, not replacing the trans and scrapping the car is not an option because your lease requires you return the car in "fine" condition or they will charge you what they see as the appropriate amount to make it "fine." 

So, if you're a wealthy type of person who buys a new car every 3 years, leasing can be a smart move.  If you are the less wealthy person who wants more car than they can really afford to buy outright then they resort to leasing (renting vs buying because like houses they dont have the downpayment money to buy.)  

So, here you are shopping cars that are a few years old with low miles.  The vast majority of what you find will be previously leased cars.  This is why when you search FB you will see VERY few genuine first owners selling a car less than 3 yrs old.  So, what happens to these lease cars at the end of the lease...

Generalization:  If it is an Audi and the financing arm of Audi was the lease holder, at the end of the lease the car will first be offered to Audi dealers only.  This is the easiest way for Audi to offload the cars.  This then is also the source of CPO Audis.  The nicest cars with the cleanest records will be desired by the Audi dealers.  
Repeat this scenero of any brand... 
If it is a Lincoln and the financing arm of Lincoln was the lease holder, at the end of the lease the car will first be offered to Lincoln dealers only.  This is the easiest way for Lincoln to offload the cars.  This then is also the source of CPO Lincolns.  The nicest cars with the cleanest records will be desired by the Lincoln dealers. 

Back to the original Audi...If the Audi dealer(s) have less interest in that specific car it may go out to a general used car auction where any dealer can buy it.  Caveat: if the lease was not held by the financing arm of Audi, like just a bank/lending company, the car may skip the Audi dealers and go straight to a general used car auction.  

So, with all this said, you will often find that the used Audi offered at the Audi dealer is nicer than the similar used Audi offered at the Lexus dealer.  In simple terms, that Audi may have been passed over by the Audi dealers.  However, don't expect the Audi dealer to have the cheapest used Audis.  They may have passed on that Audi because it had high miles or had accident history.  Or, the Lexus dealer just bought the off-lease Audi at auction via a non-Audi financing company and its a perfectly fine Audi.  

CPO: 
This varies by company.  It used to be that CPO assured you of a car that hadn't been in an accident...not necessarily today in the tighter used car market.  Every brand offers a different CPO warranty and it will require digging deep into that brands website to find details.  You might also find that the website says, "see dealer for details" and that the dealer says, "the details are on the website."  
What you wont find is the criteria that each one uses for qualifying the car for being CPO worthy.   

A personal experience of mine.  In '20 I came very close to buying a CPO Lincoln MKT.  The genuine Lincoln dealer had it at $24k.  My negotiation dies when they wouldn't come down to my price. We were $1,500 away from each other and I walked.  I then saw that this large local dealer group had moved the car to a Cadillac lot of theirs.  The same car was now $21k but not CPO.  I took this to mean that in general, it was costing the Lincoln dealership $3k to make the car CPO and therefore have a warranty.  Like all warranties, some are better than others.  

We ended up with a 21 q5 from a dealer.  
 

thanks to advice from this thread, I felt somewhat prepared with a plan for the dealer.  They asked a few times if we were going to finance it and I just said that we were strongly considering it (true, but only to just pay it off right away) but the monthly payment was going to be a big part - trying to play the dumb customer who might go for worse terms in exchange for a lower payment). 
 

When we sat down to talk brass tacks, he was a little more direct and I said that I just wanted to figure out the price and then my wife and I would discuss how to pay.  
 

don't know if that was a good tactic or not (it probably didn't hide the possibility of paying in full) but we got it to a price we were ok with and then we put as much on a credit card as they would allow  ($5k) which they offered as an option, so they didn't get upset when I did it. 
 

If they offered a lower price to finance it, we would have but I really wanted to avoid adding any additional time to the experience. 
 

overall it wasn't horrible but I much prefer to buy from a private party

Congratulations!

The key is that you are satisfied with the deal, and it sounds like you ended up with a price and payment arrangement that worked for you. 

clarification: did you put 5k on a CC and pay the rest in cash? what kind of interest rate were they offering (if you don't mind sharing, i've never/will never buy at a dealer so always curious about how competitve their offers are)?

Curtis73 (Forum Supporter) said:

Financing is the best way to pay double what the car is worth only to have it be mostly worthless by the time you pay it off.

Ummm, what?  That may be true if you have a 500 credit score, $50 to put down, and the only people who will talk to you are Dodge and Mitsubishi.

I think the most I've ever paid in total interest is about $2200, and that was on my V60, the most expensive new car we've ever bought, and for the longest term.  I could have done better than that but I was trying to hold some cash reserves for our remodeling project, which ended up getting delayed anyway.

The car is far from worthless, and even if it was, it's got at least another 60,000 miles (or more) left in it, with no car payments.

This doesn't really fit the typical GRM demographic and it depends on what state you live in, but one potential big advantage to a lease is sales tax.  Here in California you pay sales tax on a car purchase and it's basically 10%, so a $47,000 average new car is $4700 in sales tax.  If you go trade it in 3 years later to buy another $47K new (or even used) car you'll pay $4700 in sales tax again, you don't get the difference back.

But with a lease, because you're only ever buying 1 months' use of the car, you only pay sales tax on that month.  So if your payment for that $47K car is $500/month (I have no idea if that's a reasonable lease rate, I'm just making this number up), then you're paying $50 (included) for sales tax every month.  If you keep it six months and then decide to end the lease early and get something else, you only paid $300 in sales tax instead of $4700.