Let’s talk a little bit about a fun topic that we haven’t covered on the podcast much in the past, which is buying cars. Pretty much everyone has a driver’s license and uses a car so it’s a topic that impacts most people. More importantly, buying a car is a large financial decision and making a smart purchase could save you significant dollars over time.

We brought Eric Hogarth, CFP® back onto the show to discuss the car-buying process and some of the things that you need to consider before you sign the check on your next car.

The cheapest way to buy a car today is to buy a slightly used vehicle. Finding a car that’s been leased with around 15,000 miles on it still has a great warranty and a ton of life left in it. Now, if you’re not paying cash for it because most Americans can’t or don’t, what kind of financing should you do?

Most people will look at their options and focus on what the monthly payments will be, but that’s not always the best approach financially. Sure, you might be saving money each month on your payment, but how long is the loan? What will it cost you over the life of that loan? So focus on how much interest you are actually paying because a $25,000 car could end up costing you nearly twice that after being financed.

Now, there are circumstances where you might want to buy a new car instead. We always encourage people to look for incentives to find the best deal, but know that when you drive the car off the lot, it loses a lot of value. If you aren’t planning on driving that car for a long time, then it’s probably not going to be a smart financial purchase.

There’s also the option to lease the vehicle as well. There’s a misconception that you’re throwing your money away with a lease, but that’s not completely true. If you don’t plan to keep the car more than a few years and you can stay within the mileage limits, then it could make a lot of sense for you. You don’t risk being underwater if you go to resell a car and you have the peace of mind knowing that the car is under warranty.

Whenever you’re thinking about spending money on anything, ask yourself what can you afford to do. Regardless of whether we’re talking about a car, a vacation, a gift, or whatever the expense might be, it’s important to make the right decisions in regards to where do you pull the money from and when. What’s right for someone else won’t always be right for you so make sure this expense is part of your overall plan and work with a financial team to help you find the best outcome.

Here’s some of what we discuss in this episode:

• Paying cash for a car vs financing a car.

• When is it appropriate to buy a new car over a used one?

• When does it make sense to lease instead of purchase?

• A story about a client buying cars and how it fits into an overall plan.