If you’re in the market for a new car or truck, you might be considering an old argument: Should I lease or should I buy?
Unless you have enough cash available to purchase a new automobile outright, both choices have pros and cons. After you've considered your financial position, your decision should be easier than you think.
When searching for a new vehicle, you first should do your due diligence in looking for a deal online. eBay offers an excellent opportunity to buy new and used cars at a good price. Aside from that, there are literally thousands of sites that can help you put a retail price on the automobile you are looking for.
If you've drawn a blank, it's time to visit a dealership.
Whether you're anti-lease or anti-buy, it's important to know the pros and cons of both sides. Only then can you better understand the effect of your decision.
Is leasing a car cheaper in the short-term, but more expensive in the long term? Does financing a new car affect your credit score negatively? These are both very valid questions I hope to explain below.
Leasing is still a popular way to get into a new vehicle. You might notice just as many commercials devoted to leasing as there are for buying new automobiles.
So, why would you lease a new car instead of buying it?
- Lower Monthly Payments -- When you lease an automobile, you usually do so for a specific period of time. An average lease is for 36 months. You can generally expect to pay 60% of the vehicle’s purchase price within this time frame. This means your monthly lease payments are considerably less than if you decided to buy on a three-year loan. This frees up money for other areas of your budget.
- Lower Down Payment-- If you don't have a lot of cash on hand or excellent credit, buying a new vehicle can be quite a challenge. Lenders generally require a sizable down payment, and sales tax adds even more to the bill. With a lease, you can get away with a small down payment. And you'll only pay sales tax on the 60%-ish of the car that you pay for.
- Maintenance is a Breeze-- Most manufacture’s warranties cover the lease terms of your automobile, so you can get any problems with your car fixed at the dealer with no headaches. If you choose to buy, you will get the same warranty, but it won’t last forever. Finding a trustworthy mechanic can be challenging, and future car repairs could cost thousands.
- You Drive in Style -- Leasing a car every three years means you are always driving what's new. Never having to ride in a clunker keeps you in the cool crowd.
- Negotiating a Lease is Easier-- If you understand certain industry terms like Money Factor, Capitalized Cost, and Residual Value, negotiating your lease can save you hundreds if not thousands. When buying a new car, negotiating a lower price can be difficult because you're cutting into a dealer's commissions. Ouch!
Even though there are good reasons to lease a car, you can bet I've got some good ones for buying, too.
- Owning an Asset -- When you finance a car, your monthly payments go towards owning an asset, not renting one. Once you have completed the terms of your financing agreement, the car or truck is yours to keep.
- You Can Customize -- When you buy, you're free to change anything you don't like about your car without repercussion.
- 36,000 Miles and Counting -- One of the biggest fees that leasers get hit with is going over their allotted mileage. A general lease allows for 12,000 miles a year (Though if you are a smart leaser, that can be negotiated). But if you buy your new automobile, you can drive it until the tires fall off.
- Car Insurance --If you are in an accident, your car insurance provider will pay the owner of the vehicle. If you lease, that’s the leasing company. Oftentimes in leases, a car’s value is more to the leasing company than the insurer will pay for, and you’re on the hook for the difference. GAP coverage is necessary when leasing to avoid this problem. When buying a car, GAP insurance is only important if you owe more on the car than it’s worth.
- Fixing Only What You Want To Fix-- Every little ding and scratch can cost you when leasing a car. When you buy, it's up to you whether or not you want to keep the car in new condition. Anyone who turns their car in after leasing in "non-perfect" condition is risking a financial misstep.
Related: Best Insurance for Leased Cars
Suze Orman is one of the most well-known names in personal finance. She says that the worst decision she ever made, financially speaking, was to lease a 1987 BMW to impress her “love interest.” This is to say that if you’re making this decision based on something emotional, rather than a sound financial decision, you’re likely to come away disappointed.
At the end of the day, the answer to whether you should buy or lease is almost always that YOU SHOULD BUY.
There are very few circumstances in which leasing is a better option. Of those, they almost all boil down to being able to unload some of the costs on your company.
If you take care of your vehicle and drive it well, the money saved in buying can be in the tens of thousands of dollars. Unless you have a need to always drive the newest, coolest model, leasing is generally not a wise move for your wallet.
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