What’s the best choice?
Now test your judgment: Carl is about to get a truck. Given his situation, which one these three possible options do you think is best for him?
Carl has his own landscaping business and plans to get a pick-up truck. He’s been considering a brand new one, but the same dealer has a used one in good condition with low miles. He has enough cash to buy the used one, although that might mean paying some of his bills late for a few months and a delay in buying new plants. Three years from now, he’d like to sell the truck to his little brother, who’ll be turning 16.
The consequences of your choice
See the consequences of this choice for Carl and hear what your guide has to say.
“I think I made a mistake! Even though I own the truck and I’m not paying loan interest, now I’m broke. I can’t buy as many plants as I need and I’m worried that paying my bills late is going to hurt my business and my credit rating!”
If Carl had plenty of cash to spare, he could own the truck right away, and he’d save on loan fees and interest. But if this purchase requires so much cash that he can’t pay his other bills, then a cash purchase really isn’t an affordable option.
The consequences of your choice
See the consequences of this choice for Carl and hear what your guide has to say.
“I feel good about my decision. I saved money by buying a used truck instead of a new one. The down payment I made allowed me to get a 36-month loan with payments I can afford. When I make my last loan payment three years from now, I’ll own the truck and I can sell it to my brother—just like I wanted!”
Since new cars, and many used cars, can have high price tags, most people get a car loan – and it’s a good strategy for Carl. But remember: he’ll have to pay interest and fees for the loan, and he won’t own the truck until he makes his final loan payment.
The consequences of your choice
See the consequences of this choice for Carl and hear what your guide has to say.
“I don’t know if I did the right thing. The down payment was small and maintenance costs are included in the lease agreement. But I think I’ll end up paying extra because of the number of miles I drive. And when the lease is up, I won’t own the truck. I’ll have to buy it from the dealer if I want to sell it to my brother.”
Leasing may enable Carl to drive a brand new truck for not much money upfront, but when all factors are considered, leasing is frequently more expensive than making loan payments and buying a vehicle. Monthly lease payments may be lower or higher than a loan, so it’s important to comparison shop.
For more information about loans and credit, see the topic All About Credit. Click the Next button to learn the essentials of car insurance.