Call it reflections in the rearview mirror.
Now that he has agreed to a two-year lease of a 2005 Chrysler PT Cruiser, Jon Schroeder figures he probably should have shopped for a good used car.
Getting a low-interest rate from his bank wasn’t too hard for the 20-year-old construction worker from Warren, Mich. A cousin co-signed.
But when he put a pencil to all the numbers, including a monthly insurance premium of more than $300 on top of his lease payments, Schroeder decided a solid, pre-owned car would have been a much better deal.
“A used car is the way to go, at least until you are 25 and your insurance rates drop,” he said. Schroeder pointed out that not only is a used vehicle cheaper, it also doesn’t need the same insurance coverage one would want on a new one.
While he leans toward used, Joe Lescota of Northwood University in Midland, Mich., said it may be easier to finance a new vehicle.
“There is less risk for a lender with a new car” because the vehicle itself is worth more, said the chairman of the automotive marketing program at the university.
“And the interest rate on a loan may be lower on a new vehicle, although the buyer might be financing it for a longer period of time.”
A new car or truck offers the latest features. It has a bumper-to-bumper warranty from the factory. And it’s loaded with emotional appeal. “It’s an escape for some people,” Lescota said.
Schroeder said he and his girlfriend were between a rock and a hard place when they opted for the PT Cruiser. Her Ford Taurus had been stolen and his Pontiac Grand Am rear-ended.
“You sort of have to move right away if you don’t have wheels,” he said.
Brad Anthony, an independent used-car dealer at Select Used Cars in Holliston, Mass., echoed Schroeder. “Think through your choices and do the math,” said Anthony, treasurer of the Massachusetts Independent Automobile Dealers Association.
A new vehicle loses up to 40 percent of its value in the first three years, Anthony said.
“I recommend a 3- to 5-year-old car for a first-time buyer,” he said. “You’ve already taken that depreciation.”
But when looking at a used car that is no longer under factory warranty, consider what mechanical needs it is likely to have, said Anthony.
“Call a mechanic and get repair prices,” he suggested. Check Web sites and consumer-oriented reports and reviews on used vehicles.
He is wary of aftermarket extended warranties. They may cover only major repairs, not the usual needs such as brakes and timing belts.
Lescota said some factory-certification programs for used cars have extended coverage plus roadside assistance.
This is the best of both worlds to Tim Weiss, who picked up a 2002 certified, used Audi A4 in Farmington Hills, Mich., last August.
It was like-new inside and out, had its original four-year warranty plus two years or up to 100,000 miles and was easy to finance, he said.
“I know I could have bought a new VW Jetta for what I paid for the A4, but I would take a huge loss in the new car’s depreciation,” said Weiss, who does auditing for a large accounting firm in southeastern Michigan.
Weiss, 24, checked loan rates on the Audi, went into the dealership with a potential deal through his credit union, then accepted a slightly better offer from the dealer.
“For most folks in the start-up-in-life mode, the money spent making 60 monthly car payments represents a sizable portion of their disposable income,” said David Robertson, head of the Association of Finance and Insurance Professionals in Bedford, Texas. “A working knowledge of the process could reduce their monthly outlay by $20, which drops 1,200 much-needed dollars to the household bottom line.”
