Smart Money Podcast: Understand Your Options for Buying and Selling Cars

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Understand how to avoid “dark patterns” companies use to trick you. To start the show, hosts Sean Pyles and Liz Weston explain how you can spot dark patterns, which are manipulative tactics used by companies to influence customer decisions. Sean and Liz also share tactics for how you can be your own advocate if you find yourself regularly facing dark pattern difficulties.

Then, a 19-year-old listener named Belenus joins Sean and Liz to get help thinking through how to navigate the financial predicament of needing to pay for both a new car and tuition for college. Sean and Liz talk to him about the advantages and disadvantages of leasing versus buying a car and offer some tips for how to prepare before going into a dealership to make a car purchase.

Check out this episode on your favorite podcast platform, including:

• Apple Podcasts

• Spotify

NerdWallet stories related to this episode:

• Why Is It So Difficult to Sell a Car Privately?

• Is Car Leasing Dead?

• How to Manage a Car Payment You Can’t Make

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: Selling and buying a car can be a nerve-wracking financial experience. This episode, we've got some tips for you. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston.

Sean Pyles: Listener, you know that money question that you just can't figure out? Maybe you're sorting out your student loan repayment options or trying to manage your budget as a new parent, or are wondering how much you should spend on rent. Well, whatever your money question, we are here to help you answer it.

Liz Weston: That's right, so send your money questions our way. Being audiophiles, we would love to hear your questions. You can email a voice memo to [email protected] or leave a voicemail on the Nerd hotline at 901-730-6373. That's 901-730-NERD.

If you prefer written communication, you can text your questions to the Nerd hotline or write an email to [email protected].

Sean Pyles: This episode, Liz and I talk with a listener, Belenus, about selling his current car and buying a new one, including how to vet the reliability of a used car.

Liz Weston: First, in This Week in Your Money segment, Sean and I are going to do one of our favorite things. It's time for another round of our money hot takes where we rail against something that's just grinding our gears in the personal finance space.

Sean Pyles: That is right. Liz, what's on your mind?

Liz Weston: Dark patterns, Sean, dark patterns.

Sean Pyles: OK?

Liz Weston: A dark pattern is how companies trick you into making the wrong decision. This isn't something that's limited to sketchy websites. It's all over the place.

Sean Pyles: Seriously?

Liz Weston: Well, think about when you navigate to a new site. Right away you get a pop-up telling you that the site wants to collect information about you. Sometimes it's not clear that you can opt out. Often when you want to tell a site not to sell your data, the buttons for allowing the sale are a lot more prominent or worded in such a way that you think you're opting out when you're actually opting in.

Sean Pyles: Yes, the comedian John Early had a bit about this in his latest standup special. He was talking about how on iPhones, there's the prompt to allow apps to track you or not and to deny app permission to stalk you, the button reads “ask apps not to track,” which is just auditorily a very harsh combination of words. The other option is simply “allow.”

Liz Weston: Yes, and there are lots of other dark patterns. Some sites don't let you cancel a subscription online. You have to call because they know fewer people are going to pick up the phone. Unfortunately, a lot of newspapers do this, or you have to chat with a customer service rep.

Even worse, a bot that will try to eat up as much time as possible so that you just give up. A subscription that's easy to sign up for and hard to cancel, by the way, is known as a “roach motel,” which I just love. The company tries to distract you with other options.

"Hey, do you really want to unsubscribe?" Or they use confirmshaming, giving you a choice between, "I'd like to keep getting amazing deals,” or “No, I don't care about saving money."

Sean Pyles: Confirmshaming is such a good term. That's a much more precise term for what I usually call passive-aggressive BS.

Liz Weston: Yes, and that kind of language can sound familiar if you have an Amazon Prime subscription. The Federal Trade Commission in July said it was taking action against Amazon for quote, "Its years-long effort to enroll consumers into its Prime program without their consent, while knowingly making it difficult for consumers to cancel their subscriptions to Prime."

That's not the first time the FTC has fought back against dark patterns. Publishers Clearing House in July agreed to pay $18.5 million as part of a settlement following charges of deceptive practices including the use of dark patterns to encourage sweepstake entries and purchases.

Sean Pyles: Wait, Publishers Clearing House, that's the company that shows up at people's houses with comically large checks saying they won some big amount of money, right?

Liz Weston: Exactly.

Sean Pyles: I did not even know they were still in business.

Liz Weston: Maybe that's why they're doing this, who knows? In 2022, the FTC told Epic Games, which is the maker of the Fortnite video game, to pay customers $245 million as part of a settlement over allegations that Epic tricked players into buying stuff they didn't want and allowed kids to make unauthorized purchases.

Sean Pyles: Those settlements are for a lot of money, but I'm guessing the FTC is so mad about this because these dark patterns cost consumers a heck of a lot more money.

Liz Weston: Plus they waste our time and they destroy consumer trust in companies. Dark patterns have become so normalized that companies use the excuse, "Well, everybody else is doing it." That didn't work with your mother, and it shouldn't work with consumers.

Sean Pyles: Very true.

Liz Weston: Sean, what's your beef?

Sean Pyles: Liz, buckle up because today I am mad about the overly complicated bureaucratic hurdles that companies make us endure to get what we want.

Liz Weston: I get the feeling you have something specific in mind.

Sean Pyles: Yes, yes, from personal experience, and this may be a champagne problem, but it's emblematic of what I'm talking about here. I recently got rid of the private mortgage insurance on my mortgage, and the process was a saga, let me tell you.

Liz Weston: Oh dear, well, tell us.

Sean Pyles: First, a bit of table setting. I had private mortgage insurance on my house because I put down less than 20% for my down payment. In my case, my PMI was about $120 a month. I realized that isn't a lot relative to what other people pay for their PMI. My house is pretty cheap, so that's how it works out.

I do understand why lenders want this insurance, but it also feels like being taxed for not having had enough money when I was going to buy my house. That is all to say that I wanted to get rid of my PMI as soon as possible.

Liz Weston: For our listeners for context, you can generally shed your private mortgage insurance when your loan-to-value ratio, or how the value of your house compares to your mortgage principal, reaches a certain threshold like 75% or 80%. There are usually a couple of other requirements too.

You typically need a good record of on-time payments. You can't have a lien against your property, and you must have owned your house for two years.

Sean Pyles: Also, I should note that I was one of those lucky people who bought a house early in the pandemic before house prices totally went through the roof. Yes, that's a house pun. After two years and many on-time payments, my house's value had gone up significantly.

My loan to value ratio was around 70% according to estimates that I saw online. Two years to the day of closing on my house, I began the battle of my life, or at least the battle over about $120 a month.

Liz Weston: Only a little dramatic there, Sean.

Sean Pyles: I find a little bit of drama keeps things interesting. Anyway, here's what happened. First, the bank that owns my mortgage — a bank that is not to be named — requires you to call them to kick off this process. I had to pick up my cell phone and use it as an actual phone.

I'm going to call that bureaucratic hurdle number one. Shortly followed by bureaucratic hurdle number two, where the bank then physically mailed me an application to cancel my PMI. I then had to mail that back along with a check to cover the cost of an appraisal so the bank can confirm the value of my house.

Liz Weston: It sure seems like this bank that must not be named could have done this application over the phone when you called them or just had an online form.

Sean Pyles: Yeah, I agree. How many people would've given up after seeing that they had to call their bank? How many people aren't even going to bother with a paper application, and who has checks anymore? I mean, I had to go and get some specifically for this.

Liz Weston: A lot.

Sean Pyles: Anyway, it takes a little bit over a week to get my application, which I of course promptly mail back. From that point, the bank told me they would review my application and coordinate with an appraiser in my area. And the bank said that could take a couple of weeks.

Here's the thing, once the appraiser contacts me, I was told that I would only have five business days to schedule the appraisal or my application would be canceled and I would have to start all over again. I'm going to call that bureaucratic hurdle number three, having to adhere perfectly to their timeline.

I sent off the application and I waited and I waited for about two weeks. This was happening over the summer, by the way, right before I had some travel plans. I was getting a little bit nervous about the timing of all of this.

Liz Weston: OK, so what happened?

Sean Pyles: Well, I finally heard from the appraiser and I scheduled the appraisal for the very next day because I've been very on top of this, as you may have observed. After all of that waiting, the entire appraisal process took less than 10 minutes from the time the person stepped through my front door.

From that point on, I was told I might have to wait up to 90 days for my appraisal to be processed. That's not exactly a bureaucratic hurdle, but maybe it's like an overly long stretch of track that I had to get through to continue the track and field metaphor here. Fortunately, about a month later I did receive notice that my PMI was canceled.

Liz Weston: Yay, it did all work out in the end.

Sean Pyles: It did. I am loving saving that $120-ish a month. It will make my student loan payment a lot more manageable for my budget.

Liz Weston: Oh, I'll bet, yeah.

Sean Pyles: The thing is, it really feels like the bank which shall not be named put as many barriers in place as possible so that I would fail. Compare that to my partner Garrett, who recently canceled the PMI on his house. He simply sent a message to his bank through their online portal saying he wanted to cancel his PMI, and they just did it.

There was no application. There was no waiting for an appraisal. Just poof, gone. And that shows how easy things could be. While I understand that I was in a very specific and privileged situation to even have PMI to cancel and to have a house that had gone up in value so much, I still get mad that banks and financial institutions put up barriers that make things that should and could be easy anything but.

Liz, it reminds me of your high-yield savings account where you thought you were getting a rate that was automatically increasing as interest rates went up. It turns out your bank had changed the rules on the down-low, and so you were only getting 0.3% on your money.

Liz Weston: I was so ticked off I moved all of our savings to a new bank, which actually is paying a high rate and bumps it up regularly.

Sean Pyles: Yes, and I would've done the same thing. My bottom line for listeners is that you have to be your own best advocate to get what you want from the financial companies that you work with. In my case, I can't choose who owns my mortgage, but if you are having a hard time navigating stuff that should be easy, I'd recommend shopping around and finding a bank or other financial services company with better customer service.

Liz Weston: Amen, stand up for yourself.

Sean Pyles: All right. Well, that is enough of my ranting. I did want to touch on one thing before we move on to this episode's money question. That is that Liz, you will soon be leaving us again. Do you care to tell us where you're off to this time?

Liz Weston: We are going to Austria for a few weeks. My husband's teaching drawing workshops, and I'm going to go be a tourist.

Sean Pyles: I'll be sitting in my PMI-free house jealous of your adventures, but so happy for you that you're having them. Although conveniently enough, our Smart Money co-host Sara Rathner is about to come back from her maternity leave, so she'll be back in the hosting seat.

Just to make things confusing, listener, we'll still have Liz on some money question segments that we have already recorded. Having both of you with me in episodes of Smart Money is my ideal TBH.

Liz Weston: Aw, that's so sweet.

Sean Pyles: It is the truth. Well, that is all for this episode’s This Week in Your Money segment. The Money Question is up next. Stay with us.

This episode we're talking with a listener, Belenus, who's 19 and lives in Michigan. Belenus has some questions about how to sell and buy a car. Welcome to Smart Money, Belenus.

Belenus: Hi. It's nice to be here.

Sean Pyles: It's great to have you on. You are in a very interesting situation with the car that you have right now that is pretty old. Before we get into all of that, I want to hear about your finances in general right now. What's your income, expenses, savings, general things like that?

Belenus: Yeah, absolutely. I actually recently quit my job and I have a new one lined up, but I make about the same amount of money. I make about $24,000 a year. I rent my own place right now and I split it between me, my girlfriend and a roommate.

I don't have a whole lot of output when it comes to where my money's going and I'd like to think I'm a pretty good saver. I've got about $20,000 roughly saved up in money that I'm not touching for just whatever I need so far. I haven't needed it, but I know I'm on the precipice of some big spending.

I'm just about to go into college, which is going to be a big financial burden, and of course, I'm looking for a car. I'm waiting for all that money to be scooped clean.

Sean Pyles: Well, the fact that you have $20,000 saved at 19 years old is really remarkable and you should be proud of that accomplishment.

Belenus: Thank you. I've worked real hard for it. I've saved every penny for a long time.

Sean Pyles: What do you want from this money? Are you planning on dedicating it to school or this car that you're maybe going to buy? What are your thoughts on that?

Belenus: That's a complicated question. I'm either going to be taking out a car loan or taking out student loans, and that's my predicament because I do have an associate's degree right now debt-free.

Liz Weston: Again, nice, well done.

Belenus: Definitely something that I've worked really hard for, but I've got two years for a bachelor's that I'm looking at, and that's probably going to be about $20,000. It's really either $20,000 for a car and I take out a loan for school, or $20,000 for school and I take out a loan for a car.

That's honestly what it's looking like for something that's reliable, unfortunately. It's one or the other, but I'm not sure what would be the best idea given my situation.

Sean Pyles: Well, I will say there's a big difference between an auto loan and what you would maybe be getting from a federal student loan. There are much more protections that you would have and opportunities for repayment under a federal student loan than an auto loan that you might get from a dealership or a credit union, something like that.

Liz Weston: Belenus, tell us about your car situation.

Belenus: I have two vehicles right now. One is my girlfriend's car, which I've been taking to work and everything, just my daily. Then I have my car, which has been given something of a death sentence lately. It's not being taken very far.

Sean Pyles: What do you mean by death sentence?

Belenus: It started making a funny noise as all cars do, and I took it to the mechanic. I mean, I only paid $300 for this car, so I'm willing to put some money into it if I needed to. I was like, "If it's like $500 or something to fix something and make the noise go away, I'll pay it. If not, I'll just pay the diagnostic fee and find something else."

I took it to him, and he called me the next day and he said, "I can’t in good conscience touch this car. Everything's wrong with it." I was like, "Man, that sucks. I'll pay the diagnostic fee. How much?" He's like, "I won't even charge you for that. I got the keys. Come pick it up."

Sean Pyles: Wow.

Belenus: He was like, "This is a several thousand-dollar job, and if you gave me that money, I would just tell you to buy a new car with it." It was just so bad that I was like, "Then I have to look for something new." I've never bought a car that wasn't off the side of the road, so I really didn't even know where to start.

Liz Weston: I'm assuming this is an older car and it's got a lot of miles on it?

Belenus: It's a 2001 Ford Explorer, so it's not the oldest car I've owned, but it's still definitely not looking good.

Liz Weston: The reason I reacted like that is we had a Ford Explorer, and it wound up lasting over 300,000 miles. I mean, those can really be troopers.

Belenus: The thing is unfortunately this car has taken a lot of abuse. There's a reason it was $300. It was an estate vehicle, and the woman who had it before me, it had pretty much rotted in the driveway for about two to three months. They had to replace the engine because it had just rotted out.

They were like, "We'll give it to you for $300. We have no idea if it's got 20 miles or 200,000 miles left in it, but it's yours." I was really in need of a car because I was in the same scenario where I had a 2000 Chevy S-10, and the brakes went out and I really needed a car.

I want to break this cycle that I'm in where the car breaks down or something terrible happens to it, and I just am really hard pressed for another vehicle and I get something that's not very good for it.

Sean Pyles: It seems like in the past you've been buying cars from people that you meet off of Facebook Marketplace or Craigslist maybe, or in the case of your current car, an estate sale. Now, you're looking to maybe professionalize the way that you're getting vehicles and maybe getting rid of this one that you currently have. Have you thought about how you might want to sell or otherwise dispose of this car that's on its last legs?

Belenus: That one I'm not really sure because obviously I could go right back to her roots and then put it on the side of the road and sell it for $300. You want some parts. But I know trade-ins are something that I could possibly do, but I don't know if that'll get me much. I know for a fact I could sell the car to the junkyard for probably $400 if I really wanted to for a profit.

Sean Pyles: Which would mean you return a profit if you did get it for $300.

Liz Weston: Not counting what you put into it.

Belenus: That's my offer that I got from the junkyard, but I don't know if I could get more profit for trading it in. I don't know if that's a better option.

Sean Pyles: You also want to think about all of the time it might take to do your due diligence and sell it in a formal way that would be getting the car's paperwork, determining the fair price. Maybe getting some quotes or an estimate from someplace like Carfax or Carvana, getting an appraisal.

I mean, this can be pretty time intensive to do. If you know the car isn't really worth that much, selling it for parts or scrapping it might just be the easiest thing, so you can move on and begin to look at what your next car might be. That's one way that you might be able to go ahead with this.

Belenus: Absolutely. It'll definitely be the easiest way. I've junked a few cars before and I just call them, they take a tow truck. My life's easy, they hand me the check.

Sean Pyles: I want to turn to what your next car might be. Are you thinking about a used car, a new car, buying one outright, getting a loan? What have you been considering so far?

Belenus: Honestly, I've been on and off about wanting a new vehicle because I've heard some things about how they just don't last as long as they used to kind of thing. Used car is really what I've been looking at. The only thing I'm wondering is how used I want it to be.

I could get something from the past five years, and it's going to be more expensive than something from the past 10 years or further.

Liz Weston: We should point out the fact that your car currently is older than you are. In your lifetime, cars have actually gotten much more reliable. That's something to keep in mind. You can definitely hang onto today's cars for 200,000 or 300,000 miles.

It is a huge upfront cost, and we're still dealing with supply chain issues that are just getting worked out and the fact that new cars are really super expensive.

Sean Pyles: The average price for a new car was around $48,000 in July of 2023, according to Kelley Blue Book, and that's 26% higher than three years ago. An average used car price in July of 2023 was around $27,000. Still expensive, but a good deal less than a new car.

Belenus: That's definitely an issue that I'm worried about is that if I get something that's too expensive, I'm going to have to take out student loans and a car loan, and I don't know if that's something I want to do.

Sean Pyles: Well, let's start with your car budget. Have you looked into that, and do you know how much you have to spend on a car?

Belenus: I mean, if I want to not completely clean out my savings, somewhere between $10,000 and $15,000, which I don't know how much that'll really fetch me.

Liz Weston: Well, I know there used to be sites that would tell you all the great cars you could get for $5,000. I'm sure that's ratcheted up to $10,000 now, but I think that's possible to get a decent car for that amount, at least for your purposes.

Belenus: I mean honestly, I'm not super picky. Clearly, what I could compare it to is something that is a complete hunk of junk that somehow gets me from A to B. As long as all the doors open and close properly, and the noises aren't too unbearable, I'm pretty happy.

Liz Weston: Good to know.

Sean Pyles: Well I'll leave you with a rule of thumb to consider as well. NerdWallet guidelines on how much car you can afford are typically that you would want to aim to spend less than 10% of your take-home pay on your car payment and less than 15% to 20% on overall car expenses, so that would include things like gas, insurance and maintenance.

Belenus: Which is definitely something to keep in mind. That's another thing is that if I get a newer car, I know that generally I'll probably do better on gas mileage, which is just something else to think about when it comes to the long-term paying for this vehicle.

Liz Weston: How long is your commute? How much time do you spend in the car every day?

Belenus: I currently am going to be working and I'm going to be a student at Oakland University, which is about 20 to 30 minutes away from me a few times a week.

Liz Weston: Repeated multiple times in a week, that adds up.

Belenus: Yeah. I used to work at the hospital right across the street from me. I could walk to work and I would most of the time as long as the weather was amicable, and now that I definitely have a commute that's really making not having a vehicle not as fun.

Liz Weston: Belenus, we were talking before the recording about how people replace the car that they have without thinking about do I really need a car? Is this something that I could share or do without or do rideshare? Or some other solution, public transportation.

You're in the situation where you don't live somewhere where there's great public transportation.

Belenus: Which is really unfortunate because I definitely would use it if it were around me. I mean, that would be so much cheaper as a college student, but what else can I do? Really, I'm just hoping to find something that won't break down on me when finals are coming up or something like that.

Liz Weston: Yes, reliability is so important.

Sean Pyles: With your new maybe used car, have you thought about whether you'll go back to buying one off the side of the road or are you thinking about going to an actual dealership? How have you thought about where you'll get the car?

Belenus: I don't think I want to go back to the side of the road just because, I mean, most of the people who resort to the side of the road is because the car is just so old and junky that they don't know what else to do with it.

Sean Pyles: It's like one step above scrapping it.

Belenus: That's really how it is. I haven't bought a vehicle that had, I think, 200,000 miles is the lowest I bought. My first vehicle was almost 300,000 miles on it when I purchased it.

Liz Weston: Wow.

Belenus: They're cheap. They're dirt cheap, and that's the only draw for me for that. If I could buy a dirt cheap car, who knows how long it'll give me. I just want something that can give me a sense of security because the anxiety of getting in the car and not knowing if it's going to start is really something I'd rather leave behind.

I probably will look for some sort of dealership, but I guess the problem is I wouldn't even know where to start or if I'm even getting a good deal or not, you know what I mean?

Sean Pyles: Yeah. Well, this is where doing your research really comes in handy. When I bought a car about three and a half years ago now, I spent a full month scouring the internet. This was also the height of lockdown, so I had plenty of time to be doing this.

I put together a pretty elaborate spreadsheet for cars that just checked the box on the features that I wanted. I was looking for a crossover that was relatively low in miles and also under $20,000, which three and a half years ago, I could get. I just put together a spreadsheet that had things like the price that I was going to pay, the features, the link to the posting.

Then also, reviews of the car from places like Edmunds and Kelley Blue Book. I could have all of these different options side by side and see what might be best for me. I think that might be a good place to start is really getting clear on the features that you want.

You want something that's reliable and will be able to get you through a Michigan winter and get you to class and to work and home every day. That's a pretty big thing to have locked down in a new car. Taking that time to see what's available, I think, will be a really good first step.

That way, you know what kind of cars you want. Then from that point you can realize which ones fit into your budget and then which ones you might actually enjoy driving. That's where test-driving comes in.

Belenus: I've narrowed down generally what I want, but when I have been looking at my options, it really feels like it's impossible for me to afford something that is truly going to be reliable. Which is why I've even considered the possibility of leasing something, which isn't my favorite.

Liz Weston: We do have resources that can help you out. We have a cheat sheet for buying a car that a former Nerd put together that is absolutely terrific. We'll include that in the show notes. The other hugely important thing is to line up your financing first.

We'll be discussing how to look at loans and all that, but before you ever set foot on a dealership, it's really, really helpful to know that you've got financing to know what your interest rate is going to be. That way, if the dealership gives you a better deal, you can take it, but you've also got it backed up. You're not at the dealership's whim essentially.

Sean Pyles: It can be really easy to get sucked into what the dealership is telling you in the moment. If they can't get you a deal that fits your budget, you can just walk away. The moment you try to get up from a chair and head toward the door, folks at the dealership will be in a panic and they'll try to get a good deal for you.

That gives you so much leverage going into this whole conversation. Yeah, it's hard because you want to know what the car is like before you go in, but you really won't know for sure if you like the vehicle until you're actually test-driving it. By that point they have some of your information. They're going to try to get you right into the chair after that test drive to set up some sort of deal potentially.

Just keeping a level head and realizing that you don't need to buy that car that's right in front of you, as fun as it might be to think about buying that car in the moment, can really save you some money and some strife in the long run, just realizing you have lots of options.

Belenus: Which is something I definitely want to keep in mind because I think my biggest fear regarding this whole thing is being taken advantage of, because I don't really have a lot of people I can be like, "Hey, does this sound reasonable or does this sound super messed up to you?"

I don't have really anyone that I can just ask that question to, so I have to trust some people. I really want to come to these situations fully equipped with everything at my disposal helping me. I think that's definitely a good idea. I do work with a credit union that I could talk to about my financing options.

Liz Weston: Credit unions could be a great source of loans. They tend to be cheaper because they're member-owned, and you might even have somebody there that you can talk to about the process of buying a car because most older people have been through it.

Some of them are really good at negotiation, some aren't, you never know. It sounds like you don't have a buddy to take with you to the dealership, so that's a big concern.

Belenus: Unfortunately, which is really my worry. I have my girlfriend, but she's just as lost as I am when it comes to these things. Really, I just have to load myself up with knowledge and walk in there because that's all I have. Definitely having these things in my arsenal so to speak is really important to me and it makes me feel much better about this whole process.

Sean Pyles: One resource that I like to lurk through is the “What Car Should I Buy?” Subreddit. There are lots of people who are pretty knowledgeable about different types of cars in that community. Take anything that any internet rando says with a pretty hefty pinch of salt.

But I do find that the folks in that Subreddit community tend to be pretty knowledgeable, and it's at least a good place to bounce ideas off of people, if you do feel like you don't have someone you can turn to get a second opinion about a potential car you might buy.

Belenus: Yeah, absolutely. That's definitely something to think about.

Liz Weston: Belenus, you mentioned leasing. What are your thoughts about that?

Belenus: Well, first of all, I don't know how available leasing is to me because I mean, I have a decent credit score, 700, 710. That's not bad, but I also am 19 and all I have is one credit card from my credit union and no further credit history. I worry that either if I do lease, my interest rates are going to be really high, or I won't be able to lease at all.

Liz Weston: As background, I used to hate the idea of leasing. I wanted to own my cars and drive them into the ground. Leasing can be better if you only are planning to own the car for a few years. If you were thinking that once you graduate, you will buy a car or something else, leasing's not the worst idea in the world.

Also, if you're somebody that just has to have the newest and latest and greatest and can afford it, leasing can make more sense. You can't drive a ton though because typically the lease contracts will limit you to about 12,000 miles. I've seen some that were 15,000, but if you drive more than that, you're really going to pay when the lease is over.

Belenus: I don't like being constrained to that sort of thing. I worry, I guess, that that might be the best way for me to get a reliable vehicle that I can also afford. I'm not a big fan of leasing for a similar reason because I like being able to own my car, and do whatever I'd like to it and put stickers on it.

Whatever I want to do and I like that, but I'm willing to sacrifice that if it will give me a more reliable vehicle.

Sean Pyles: Yeah, that's fair. For me, my big reservation with leasing a vehicle is that it can lock you into having a car payment for many, many years. You have the term of the lease, which is maybe around three years. Then, once that's up, you often will have the option of buying the car, which will then maybe be an auto loan or you get another lease.

So you just have this perpetual car payment forever. Personally, I just am trying to get rid of my car loan as quickly as I can because I just don't really want to have the debt hanging over me. It's been three-ish years, and I’m kind of over it. That's something to think about, too, is how long you want to have a car payment for.

On the question of reliability for a used car, there are ways where you can determine whether the car will be reliable or not. You can look at the car's vehicle history report. That's a great source of information. Also, if you have test-driven a car, you really like it, you think you might want to buy it, oftentimes people will recommend getting an actual inspection from a mechanic, maybe even two, just to evaluate the vehicle and make sure that there isn't anything shady going on under the hood. That's a way where you can get a professional's thumbs up on whether the car will be reliable or not.

Belenus: OK, I guess that's interesting. I didn't know you could have a mechanic look at it beforehand.

Liz Weston: It sounds like you have an honest mechanic who told you, “Do not put the money into it.” That's the first place I would take it.

Belenus: No, I love that mechanic. I've taken it to him for all my cars because he always overestimates, and then I end up paying less than I think I will.

Sean Pyles: That's nice.

Liz Weston: In regards to leasing, if you are looking at electric vehicles or plug-in hybrids, a lot of times leasing is recommended because the technology changes so fast. That's something to factor in on top of everything else. If it's a gas car and you want to own it forever, that's one thing.

If you are taking a chance on the technology, even Consumer Reports says OK, go ahead and lease. By the way, we didn't mention Consumer Reports, but that's another great resource to check out cars.

Belenus: The real question is then at the end of the day, should I put my money towards a student loan or towards a car loan?

Sean Pyles: That's really hard to say. For student loans, you are investing in your future, some will say, and you may have potentially a better interest rate on that than a car loan. However, buying a car outright with cash can tie up a lot of your liquidity that you currently have, and that would then go into a depreciating asset.

There's no one-size-fits-all solution with this, but like I mentioned at the outset, I think a potentially safer loan may be federal student loans if you have access to them because you have more repayment options if you maybe are unemployed and you have trouble paying back this loan.

Where if you are unemployed and you have trouble paying your car loan, it may be repossessed. You have to think about different circumstances for what would happen if I was in a difficult situation and I actually couldn't make a payment. Realize that an auto loan might be slightly more precarious.

Belenus: I think that's a great point. I'm pretty afraid of debt, so I've avoided it up to this point. I mean, I have a credit card, but I pay it off on a weekly basis. The safest debt is probably the best debt in that scenario. That's definitely something, that’s good to know.

Liz Weston: I so get where you're coming from. A lot of people I grew up with were the same way, they just absolutely refused to go into debt. The problem with that is you can wind up not getting the education you need, which is a big one, or not being able to get ahead the same way, like if you'd never gotten a business loan and couldn't start a business or couldn't expand your business.

It really is a tool, but you are so smart to be careful about it. Those federal student loans really do have so many safeguards built into them that it's not like taking out a credit card. It's a very different kind of loan.

Sean Pyles: Belenus, I really do want to compliment you again for where you are financially. You've been able to save over $20,000 at 19 years old. You're being really careful with how you approach going into debt. You're not jumping into the fanciest, most expensive car you can qualify for, which I would say a lot of people 19 or 29 or 49 would maybe be tempted to do.

I think take time to appreciate that, but really appreciate what you have done so far. I hope that you take the time to do the right research, find the right car, and the right form of debt for you. Given all that we've talked about thus far, what do you think might be your financial decision when it comes to buying a car and what kind of loan you might get?

Belenus: All things considered, I probably will go for student loans just to even that out because I've already paid my first semester, and that was a big chunk of change right there. I think student loans might just spread it out a little more and have me be in safer debt. Then, use the money I have to purchase a reliable, newer, used car that will hopefully help me get from A to B.

Sean Pyles: I'm really excited for you and all that you have in store. Please keep us updated on how this all pans out.

Belenus: Absolutely, thank you very much.

Sean Pyles: Liz, what do you think about Belenus's situation?

Liz Weston: I think he's a hero, oh my gosh. Totally our kind of nerd. He's got money saved up at a young age. He is understandably concerned about debt. He's more focused on staying financially healthy than he is on getting great wheels, which I think is absolutely awesome.

Sometimes you have to nudge yourself into taking on a little debt so you can actually find something that's reliable and something that's going to meet your needs.

Sean Pyles: Right. Well, what I really appreciate about him as a consumer and potential car buyer right now is that he is asking all of the right questions. Sometimes you can't help it and you are rushed into buying a new vehicle, but the more time you can spend to really figure out your budget, really figure out what you need and don't need in a car and what car might be the right one for you, the better you will end up in the end, making sure that you don't get a car that is too expensive or not quite right for your needs. I just think he's doing all of the right things and I can't wait to see how this ends up for him.

Liz Weston: Yes, exactly.

Sean Pyles: All right. Well, that is all we have for this episode. If you have any money questions of your own, car-related or otherwise, turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. Visit nerdwallet.com/podcast for more info on this episode.

Remember to follow, rate and review us wherever you're getting this podcast. This episode was produced by Liz Weston and myself with help from Tess Vigeland. Kevin Tidmarsh mixed our audio. A big thank you to NerdWallet's editors for all their help.

Liz Weston: Here's our brief disclaimer, we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.