UTMD2023 Posted June 19, 2019 Report Share Posted June 19, 2019 I've decided to get a vehicle as I will need one for the rest of the summer and it would be very convenient during the school year. This is a decision I've thought a lot about and is one that I am committed to. However, I'm wondering what the best way to do this would be. I'm not going to get something super extravagant, just something that requires low maintenance with low mileage that will get me through school (thinking Honda Civic). I will be using my line of credit to pay for the vehicle so I am wondering whether it would make more sense to buy the vehicle outright (budget is ~15-20k) and immediately start paying the monthly interest on that payment ($45-60/month) or if I should lease (~$350/month) so that I am not paying nearly as much in interest per month (~$1.10 for the first month, $2.20 for the second month, etc.) for the duration of my LOC. Any insight would be appreciated! Quote Link to comment Share on other sites More sharing options...
Meridian Posted June 19, 2019 Report Share Posted June 19, 2019 You are paying interest either way - which interest rate is lower ? Quote Link to comment Share on other sites More sharing options...
UTMD2023 Posted June 19, 2019 Author Report Share Posted June 19, 2019 Well if I'm buying outright the interest would just be the 3.7% from my LOC, whereas with the lease it would be 0.99% as well as the 3.7% from my LOC, however the payments would be a lot smaller and wouldn't be near the total monthly money I'd be spending on interest if I bought the vehicle. With leasing, I'd basically be delaying the interest I'd be paying monthly if I bought the vehicle by 3-4 years; however I wouldn't own the vehicle in the end, but would have the option to buy it afterwards or lease a vehicle again. So it's basically buy the vehicle and spend $45-60/month in interest right away and keep spending this every month until I start paying off my LOC which wouldn't be until some point during residency, or lease and make much smaller interest payments until a lot further down the line. Quote Link to comment Share on other sites More sharing options...
ArchEnemy Posted June 19, 2019 Report Share Posted June 19, 2019 52 minutes ago, UTMD2023 said: Well if I'm buying outright the interest would just be the 3.7% from my LOC, whereas with the lease it would be 0.99% as well as the 3.7% from my LOC, however the payments would be a lot smaller and wouldn't be near the total monthly money I'd be spending on interest if I bought the vehicle. With leasing, I'd basically be delaying the interest I'd be paying monthly if I bought the vehicle by 3-4 years; however I wouldn't own the vehicle in the end, but would have the option to buy it afterwards or lease a vehicle again. So it's basically buy the vehicle and spend $45-60/month in interest right away and keep spending this every month until I start paying off my LOC which wouldn't be until some point during residency, or lease and make much smaller interest payments until a lot further down the line. I did a quick calculation with the price of a basic model of Honda Civic (auto transmission, without any added features or warranty) valued at $23,376. I assumed the following rates: LOC interest rate = 3.7% Lease interest rate = 0.99% Buyout interest rate = 3.7% As you probably already know, buying a used vehicle can save you more money as the initial depreciation is the highest. However, Japanese cars (esp Civic or Corolla) hold their value very well and may not depreciate as much. Quote Link to comment Share on other sites More sharing options...
robclem21 Posted June 19, 2019 Report Share Posted June 19, 2019 You also need to consider other things when leasing a car (every little scratch, mileage, the fact that after 3-5 years you have no asset). It is basically "rent" for a car. Granted, the value of a car is almost immediately halved the second you drive it off the lot, there is still some value in it at the end for you. Honda's are great cars and hold their value well, but there are also very reliable brands like Kia or Hyundai that may not hold their value, but will be about 10-15K less up front if you choose to buy it. Quote Link to comment Share on other sites More sharing options...
UTMD2023 Posted June 20, 2019 Author Report Share Posted June 20, 2019 I guess financing could be a good option as well. Definitely a lot of things to think about. Thanks everyone for the advice! Quote Link to comment Share on other sites More sharing options...
Mansi@30 Posted June 29, 2019 Report Share Posted June 29, 2019 I would like to thanks to all. You have shared very helpful information to us. Quote Link to comment Share on other sites More sharing options...
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