Leasing Or Buying a Car: Which Is The Right Option For You?
Moving to a new place can be difficult and when you’re moving somewhere that doesn’t have a whole lot of mass transportation or you’re growing your family or for any reason you need to get a vehicle of your own, it can be difficult to figure out just what to do about it.
When you’re ready to get that car you wonder about the specific make and model you’re going to get. You wonder about the colors and the safety ratings. You probably wonder about fuel efficiency and trim level. But what you might not think about right off the bat is whether you’re going to buy or lease.
Should You Buy?
|Less cost over time||Down payment required|
|Customize/modify options||Depreciates over time|
|Drive as much as you want||High short term costs|
|Sell whenever you want||Pay interest on the entire balance|
|Build resale value||Insurance required|
|Own the vehicle|
If you purchase a vehicle you get the right to do whatever you want with it. No one gets to tell you what you can and can’t do.
The Benefits Of Buying
Now, financing puts you beholden to someone, the lender. And they’ll hold your title until you pay off your debt to them. But you’re going to continue to build equity in the vehicle as you pay for it. If you pay it off before it depreciates too much in value you’re going to still have equity. If you just have a lease you’re never actually going to have equity.
On top of that, a lease means that you can only drive as much as your agreement says. You may have mileage restrictions. If you own the vehicle you can drive as much as you want and go wherever you want. That can be a benefit for those who need to drive more with their vehicle or who plan to go on long trips during the time they have it.
Owning a vehicle also means that you get to decide how you’re going to customize it and what you’re going to do with it. You can even increase your resale value depending on what type of improvements or changes you make. Not only that but you can actually use the equity that you build up to get something else because that can be used as a type of collateral toward something new or even as a trade-in if you prefer. Leased cars just don’t offer this.
The Downsides Of Buying
The downside to owning a vehicle is that it’s going to depreciate in value. In fact, as soon as you drive off the lot you’re going to lose about 10% of the value because the car is no longer brand new. Once you pay off the loan (on average 5 years) your vehicle is worth about 30-50% of the original value. And that’s if you’ve done a really good job of taking care of it.
When you buy a car you have to pay for everything. You get to own the car but that’s going to cost you more to do. So, the upfront cost and the short term cost are going to be much higher. Also, you’re going to have higher payments because you’re paying for the entire car (unless you put down a whole lot as your down payment). In order to get the best financing you need great credit or that high down payment again.
Something else to consider is the fact that you’re going to pay interest on the entire value of the vehicle at the time you make the purchase. When it comes to leasing a vehicle you don’t pay that much interest. You pay interest only on what’s considered the difference in capitalized cost and residual value.
And no matter what you do, you’re going to have to have full coverage on your vehicle. That’s because insurance companies, dealerships and financial institutions want to make sure that if anything happens to that vehicle it’s going to be replaced just the way that it is.
Should You Lease?
|Smaller monthly payments||Penalties for going over mileage|
|Lower expenses for repairs||Continued monthly payments|
|No sales tax fees||Good credit required|
|Loan approval not required||Higher insurance premium|
|No down payment||Less economical over time|
|No depreciation||Charges for excess wear-and-tear|
|New care frequently|
For those who want to keep their costs down a little lower every month it can be a great idea to lease a vehicle. They can actually cost as much as 50% less than buying a car does. And that if you can get a really good loan and a really good interest rate.
You’re also going to have a great warranty, because your vehicle is covered during the entire life of your lease. By the time your warranty is up the lease is up too. With a purchased car you’re eventually going to run out the warranty and then you’re going to be responsible for the repairs and anything that needs to be done.
Whether leasing saves you a lot on sales tax or not is going to depend primarily on where you live. That’s because some areas only make you pay taxes on money that you’re putting down and money that you pay each month. That could be a big benefit over buying a car outright as well.
Even more, you don’t have to worry about what happens when you’re tired of the vehicle or you’re done with it. There’s no need to worry about selling your vehicle because it’s just going to go back to the dealership and they can take care of it. No stress, no haggling and no worry about depreciation because you’ve paid for everything already.
Finally, you don’t have to worry about getting an outdated vehicle. You’re going to be leasing something that’s new and that means they have the best features and all of the best safety ratings. All of this keeps you and your family a lot safer and happier because you’re getting the best of everything from emergency braking to semi-autonomous driving.
Of course, if you’re going to lease vehicles for the rest of your life you’re going to have to deal with those monthly payments for the rest of your life, and that’s not always something you’re going to want to deal with. If you don’t have a good income it’s not going to be a good option either. And if you have a change in income you could find yourself in some trouble if you need to get money quickly and get out of that lease.
Just make sure you’re taking a look at the fine print when it comes to leasing (if that’s the way you decide to go.