Unfortunately, there are other bills to worry about when it comes to a car, especially a new one. Besides gas and insurance, new cars have hidden maintenance costs that people often overlook, like maintaining the warranty that’s supposed to be saving you money. Also keep in mind that the moment you drive a brand-new car off the lot, its value goes down. And it will keep going down. This means that if something happens and you can’t afford the loan anymore, selling the car might not even give you enough back to pay that loan off.

Pros and Cons of Leasing a New Car

Leasing a new car gets you a bunch of trade-offs compared to buying. You can try out the latest model and features every few years, but you’ll always be paying monthly fees, often at a rate higher than financing a newer car. The monthly bill will be cheaper than if you bought, but you won’t have anything to show for it after the vehicle is returned. Dealerships keep the lease costs low by only charging you payments based on the value of the vehicle for the lease period (e.g. 3-4 years), which is also why there’s always a buy-out amount at the end of a lease. Most lease vehicles are new, so you’ll have the standard maintenance costs and will have to keep the car in great condition or risk penalties when you return it. Its depreciation has no effect on you, but that’s because you can’t trade it in or sell it; it’s not your car.

If you’re looking for the most cost-effective and affordable option, then that’s buying a good used car and keeping it for as long as you can. However, if you’re self-employed or work in specific industries, there can be tax benefits to leasing vs buying a vehicle (check with your tax professional to find out if this applies to you). Keep in mind that if you have to break a lease, the cancellation costs will hit your wallet hard. It’s a lot easier to sell a car – even with a loan against it – than to find someone to take over your lease.

How to Save Up a Down Payment for a Big Purchase

The Best New Car is the Vehicle You Can Afford

Before leaving your driveway in search of a new car to lease or buy, figure out what you can afford each month in your budget. Start by looking at your income, monthly expenses, and seasonal expenses. Remember that besides your loan or lease payment, you need to consider fuel, insurance, parking, and regular maintenance. Even if you don’t need to do big maintenance or repairs that often, setting money aside for them every month in an emergency fund is a lot easier than dealing with a large bill all at once. A good rule of thumb is to save $50 towards bigger maintenance/repairs for every tank of fuel you buy. Once you have your budget worked out, shop around and use this government calculator to compare the costs of leasing vs. buying. To avoid or at least be aware of possible expensive surprises like a lump sum cost when the contract ends (this can happen even when buying new!), read and understand the fine print on your purchase or lease agreement before signing.

In the end, your most important decision when getting a new car isn’t whether you’ll lease or buy, but whether you’ll get a deal you can afford. When you choose to get a car you can afford, you choose to put your financial wellbeing first. No matter how good a car or “special” offer looks, if it’s out of your budget, then forcing yourself to get it raises your chances of having debt and financial problems later on. In other words, make sure the payment is as comfortable as the car.

What to Do If You Need Help with New Car Payments

Putting cash down on a big-ticket item like a new car is a big decision. Unfortunately, even if you made the right decision at the time, your circumstances may have changed so that your car payments are now throwing your finances off track. If so, a non-profit credit counselling organization in your area can help you review your situation, explore your options, and find a path forward. Reach out to get help so that you can drive with peace of mind.