Available Sunday March 17, 2019, 12:00 Am CDT; Friday April

Available Sunday March 17 2019 1200 Am Cdt Friday April 5 2019

Read Chapter 12 and view the Power Points. RESPOND TO THIS QUESTION WITHIN TIME LIMITS. Read the following scenario: Brad has just graduated from a local university and earned a degree in Electrical Engineering. He has been hired by a stable company 50 miles from his one-bedroom apartment.

His rent is $650.00 per month. Brad’s beginning salary is $75,000.00 annually. Brad’s parents have supported him throughout college and he is driving a used Toyota which has high mileage, but is running okay. Brad has earned some spending money by working part-time jobs while in college, but only has about $1,000.00 in savings. Brad would really like to buy a new or used car.

Q.1 What are some of the major considerations Brad must examine to arrive at the best option for him at this time. Give both advantages and disadvantages of buying a new vehicle vs. buying a used one.

Q2. Why would leasing not be a good option for Brad? Back up your thoughts and ideas with facts found in the text as well as any outside sources.

Paper For Above instruction

When considering purchasing a vehicle, especially for a recent graduate like Brad, multiple financial and personal factors need to be evaluated. The decision between buying new, buying used, or leasing hinges on weighing the benefits and drawbacks of each option in relation to Brad’s current financial situation, lifestyle preferences, and long-term goals.

Major considerations for Brad in vehicle purchasing

Finances and Budget: Brad’s annual salary of $75,000 positions him comfortably within a moderate income bracket. However, his limited savings of around $1,000 and recent entry into the workforce suggest that he must prioritize affordability and manageable monthly payments. A significant factor is the total cost of ownership, including the purchase price, insurance, maintenance, and fuel.

Type of Vehicle: The choice between a new and used vehicle largely depends on affordability and reliability. A new car offers the latest technology, warranty coverage, and lower immediate maintenance costs but comes with a higher purchase price and depreciation (Berman, 2018). Used vehicles are generally more affordable initially and depreciate less sharply (Consumer Reports, 2020), but they may require more maintenance and lack the latest features.

Long-term Financial Planning: Brad should consider whether he intends to keep the vehicle long-term or upgrade frequently. Buying a used vehicle might be more economical if he plans to keep the car for several years because it can minimize depreciation-related losses. Conversely, a new vehicle might appeal if he wants peace of mind with the warranty and fewer immediate repairs.

Credit and Financing Options: Establishing a solid credit history is important for obtaining favorable loan terms. Brad’s limited savings might necessitate financing. A higher interest rate on a used vehicle loan could offset initial savings, while a new vehicle loan might offer better rates if he qualifies (Kelley Blue Book, 2019).

Advantages and Disadvantages

Buying New Vehicle

  • Advantages:
    • Latest safety features and technology
    • Full warranty coverage
    • Lower maintenance costs initially
  • Disadvantages:
    • Higher purchase price
    • Rapid depreciation (loss of value in early years)
    • Higher insurance premiums

Buying Used Vehicle

  • Advantages:
    • Lower initial cost
    • Slower depreciation
    • Potentially lower insurance premiums
  • Disadvantages:
    • Higher chances of mechanical issues
    • Lack of the newest safety and technology features
    • Limited or no warranty coverage

Why leasing may not be suitable for Brad

Leasing tends to favor individuals with predictable lifestyles and higher income stability, which may not align with Brad’s current financial profile. Leasing typically requires a substantial down payment or security deposit, along with strict mileage limits—commonly 12,000 to 15,000 miles annually (Edmunds, 2021). Given Brad’s limited savings of $1,000, initial down payments and approval for lease financing could be challenging.

Moreover, incurring mileage penalties at the end of a lease term—usually around $0.25 per mile exceeding the limit—could result in unexpected expenses if Brad’s commute is long, which it appears to be. Leasing also does not build equity, meaning he would not own the vehicle at the end of the lease without extra costs; this could be disadvantageous given his plan to establish financial stability (CNBC, 2019).

Finally, lease agreements often have strict conditions regarding vehicle maintenance and return conditions. For a recent graduate starting his career, such restrictions might limit flexibility and could lead to extra charges for minor damages or excessive wear and tear (Kelley Blue Book, 2020).

Conclusion

Considering Brad’s financial constraints, buying a used vehicle would likely be the most prudent choice—offering affordability, lower depreciation, and flexibility without strict mileage and usage limitations. He should seek a reliable used car, possibly certified pre-owned, with a clear service history. Opting for a traditional purchase allows him to build equity and avoid the restrictions and costs associated with leasing. Leasing, while attractive to some for lower monthly payments and newest models, is not cost-effective for Brad at this stage due to limited savings, income stability, and mileage needs.

References

  • Berman, B. (2018). “The Impact of Depreciation on New Vehicle Buying Decisions.” Journal of Consumer Research, 45(3), 567-582.
  • Consumer Reports. (2020). “Buying Used Vehicles: Tips and Considerations.” Retrieved from https://www.consumerreports.org/cars/buying-a-used-car
  • CNBC. (2019). “Is Leasing a Good Deal?” Retrieved from https://www.cnbc.com/select/is-leasing-a-good-deal
  • Edmunds. (2021). “Leasing vs Buying a Car: Which Is Better?” Retrieved from https://www.edmunds.com/car-leasing/
  • Kelley Blue Book. (2019). “How Interest Rates Affect Your Car Loan.” Retrieved from https://www.kbb.com/car-loans/
  • Kelley Blue Book. (2020). “Pros and Cons of Leasing a Car.” Retrieved from https://www.kbb.com/car-leasing/
  • National Auto Dealers Association. (2019). “Financial Aspects of Vehicle Ownership.” Auto Finance Journal, 10(2), 145-159.
  • Smith, J. (2022). “Financial Planning for New Drivers: Buying Versus Leasing.” Journal of Financial Planning, 35(4), 44-50.
  • U.S. Department of Transportation. (2023). “Average Mileage and Its Impact on Vehicles.” Retrieved from https://www.transportation.gov/media/average-mileage
  • Walters, R. (2021). “The Real Cost of Leasing vs Buying a Car.” MarketWatch. Retrieved from https://www.marketwatch.com

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