Finance

Should I Buy or Lease a Car?

new carThere are a lot of decisions to make when getting a new vehicle, among them is, “Should I buy or lease a car?” Each financial choice offers advantages and disadvantages. For example, monthly car payments when purchasing a vehicle are generally higher. While a lease offers lower monthly payments that allow people to get an upgraded vehicle, the payments continue until the lease ends and the vehicle is returned. Or there is a buyout loan that may come with higher interest rates than buying a new car. Though it is complex to compare these two different forms of acquiring a new vehicle, let’s break it down.

Buying:

Purchasing a car basically involves getting a conventional car loan. While one can pay in cash, due to the high expense of vehicles, a buyer will generally acquire a loan through a bank, credit union, or other lending institution. A buyer may make a down payment and/or trade-in another vehicle to offset some of the costs of the new vehicle. Then, the buyer makes monthly payments on the balance due on that vehicle, which includes paying the principal and interest on the loan, plus other finance charges, taxes, and fees. Interest rates vary depending upon numerous factors including the borrower’s credit score. Basically, the better the credit score, the lower the interest rate, and the lower the monthly payment. Every time the buyer makes a monthly payment, not only do they pay down the loan, but they gain equity. At the end of the loan, the car belongs to the buyer. Sometimes, warranties come with cars or can be purchased separately.

Leasing:

Leasing a car means that one is paying to use a new car, but he or she is not working toward ownership. It is basically renting it from a dealer for a fixed period. Money down is often required, and interest rates may vary depending upon one’s credit score – with the best deals available to those with stellar credit. Additionally, there is no trade-in value at the end. Leasing is popular because it can put people in more high-end vehicles than they can typically afford to buy. Plus, monthly payments may be more affordable than purchasing a vehicle. Depending on the type of lease, there may be a buyout option at the end of the fixed period. This means that the person leasing the vehicle can opt to buy the vehicle at the residual value upon completion of the leasing term. The residual value of a leased car is what the leasing company expects the car to be worth at the end of the lease. The buyer of a leased vehicle would also be responsible for taxes that may apply. Bear in mind that leases have mileage limits and drivers may be penalized for going over the cap. Also, leased automobiles must be kept in decent shape to avoid charges for excess wear and tear that can cost the buyer in the end, should they wish to return the vehicle after the lease is up. Additionally, if a lease is terminated early, charges may apply. Per Consumer Reports, “In the end, leasing usually costs you more than the equivalent loan because you are paying for the car during the time when it most rapidly depreciates.”

Conclusion:

When deciding whether to buy or lease, most people look at what car they want and then the monthly payment. But it is equally important to also consider the long-term. When you buy a vehicle, you own something in the end. This can help you get out of car payments and into a new vehicle in the future. With a lease, after making the payments, you don’t own anything. It’s also important to look at other factors such as annual insurance costs. Insurance for a leased vehicle is generally higher than that of a purchased car. In some cases, leases can provide rebates, offer business owners some tax advantages, and perks such as free oil changes. However, when a person continues to lease vehicles, they never get out of having a car payment. Ultimately, most experts agree that while it’s hard to compare these two different forms of financing, buying is likely the best option for people who intend to keep cars long-term, even when factoring in typical maintenance and repairs.

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Joanne
1 month ago

Conventional wisdom has always come down on the side of buying a car rather than leasing. But after 25 years of leasing, my husband and I gladly continue to lease. We came to lease initially because we had no car to trade in and no cash for a down payment. We continue to lease because we like having a dependable car that never breaks down as well as no repairs other than the usual maintenance. We’ve never had to make a down payment on a lease and our dealer is always willing to work with us and give us the best deal possible. Leasing is not for everybody but it can work very well for some.

Karen
1 month ago

I have a leased vehicle. Because I have moved and done extensive driving, I know I am going to exceed the mileage limits by a lot. I’m thinking I need to try to buy the car off the lease. But do I do it now, a year into lease or wait til closer to end? Any thoughts? Need advice.

Don
15 days ago
Reply to  Karen

Assuming you will be financing your lease buyout, you will be paying interest on the balance either way. If so, there are at least two important considerations to include in your decision. First, the loan terms (interest, payments, early payoff restrictions, etc.). Will you really be saving anything? And will doing so affect your credit score?Second, buying out the lease early means you also release the leasing company from it’s obligation to allow you to return the automobile at the lease’s conclusion even if its market value has decreased dramatically. Remember, some cars lose market value more quickly than anticipated over the lease term. It’s comforting to know you can walk away from such negative equity if it’s to your advantage to do so.Continuing your lease to it’s preset termination gives you the power to choose whether too buy it then, or to opt out if it is not to your liking for any reason.Take your time to consider it carefully.Don

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