Baby, can we drive your car?

It has begun.

Although we’ll be holding on to our glitchy minivan until June, we’ve already begun looking for a replacement in earnest. Last weekend we test-drove a new Volkswagen Golf Wagon. It’s smaller and easier to manoeuvre than our minivan, but still has enough room for the dog, both kids (including Izzy’s car seat) and a friend or grandma. Here’s what it looks like:

Yes, I know we had been talking about a used Subaru, and I’d even put our names on a list for one (lots of appealing vehicles have already come available, though too early for us). And that’s still a consideration. But, like most families with a mortgage and a daycare bill eating up a big chunk of our take-home pay, cash flow is a big consideration, and we will have to finance part of the cost of any vehicle we choose. The truth of the matter is that it’s usually cheaper to finance a new car than a used one, simply because the loan is backed up by the value in the car. A new car has plenty of value, so IF the lender ever had to sell it to recoup the money they’ve loaned you, they easily can. A used car is tougher to sell and will garner less money, so fronting you money to buy one is a bigger risk for lenders; that’s why they charge more for loans on used vehicles.

I know, I know, some people swear by used vehicles because some other sucker has already paid the biggest part of the depreciation (that’s the loss in value that a vehicle incurs, and most of it happens upfront). But, as my colleague Jackie noted yesterday, “Anytime we bought used vehicles, we had repair bill after repair bill.” Wanting to avoid that expense, she and her husband now prefer to change their vehicles every four or five years, getting a new one each time.

Here’s the thing. Some people feel that by buying used, they’ve somehow beaten the auto market. Indeed, there is merit to buying a used vehicle, particularly if you have the cash to pay for it outright. The less you have to finance, and the lower the rate you can negotiate, the cheaper any vehicle will be for you in the end.

But the truth of the matter is that buying a vehicle is a money-losing proposition. For most of us, it’s a necessary evil – we need cars to get to our jobs or take our kids to school; maybe our car is a requirement of our work. So the only thing, the ONLY thing there is to do is minimize that money-loss.

In recent years, leasing has gotten a bad rap. But if you can get a decent interest rate (some auto companies are leasing at 8.9%, which is ridiculously high), it’s not a bad option if you don’t have a huge amount of cash to devote to car payments each month. Click on this link from the Office of Consumer Affairs for a great pros-and-cons list that’ll help you decide whether to lease or finance your next vehicle.

An appealing aspect of the Golf Wagon is the option to finance with  VW Select – it’s a blend of a lease and financing that leaves you at the end of the term with a much smaller balloon payment, should you choose to purchase the vehicle, than you would have with a lease. You can adjust your down payment and VW Select percentage to increase the amount of money that goes to the loan principal, so you’re paying down the loan faster and paying less interest overall. Matt and I crunched some numbers and found that we can get into a Golf Wagon quite comfortably, with payments more than $100 less than we’re currently shelling out for the minivan.

So, it’s in the running. But we’re definitely going to be driving lots more before we decide. Next: I get to preview the 2011 Nissan Quest! Stay tuned for details.

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