When deciding between a buy or lease new car, you should consider the pros and cons of each as either is a major financial investment.
When determining whether to take out a loan or opt for a lease contract, there are a few factors that you should keep in mind:
1. Finance Amount: When you buy a car, you pay the entire purchase price of the vehicle regardless of how long you keep it or how much you drive it. However, with a lease, you are paying only a portion of the vehicle’s value, based on the amount of time you have it.
2. Down payment: Most lending institutions require a down payment when financing the purchase of a car; however, you will typically have the option of not putting money down on a leased vehicle. A lot of advertised leasing “deals” are based on a down payment, but arrangements can often be made with the dealership to have this amount reduced or even eliminated.
3. Payment amount: Typically, a monthly lease payment is based on the depreciation of the car rather than its full value, thereby making the payments significantly lower than if you are financing the entire cost of the vehicle through a loan.
4. Taxes: When you purchase a car, you are required to pay all applicable taxes at the time of the sale. This means that you will have to pay the amount up-front or add it to the loan. However, a lease contract adds the taxes to each monthly payment, so you are only paying for the duration of the lease rather than on the full value.
5. Turnover: Many people prefer a lease because when the term is over, they simply drive into the dealership, had over the keys, and leave with a new vehicle. They don’t have the hassle of trying to sell the car or negotiating trade-in values. However, some consumers do not like the lease option because they think that they have nothing to show for all the money they have spent. They view is as a type of ‘rent’ that results in no ownership. It is important to note that lease holders do have the option to purchase the vehicle for its depreciated sale value at the end of the lease term.
6. Equity: Buying a car allows you to build equity in your vehicle; whereas, lease payments are not applied toward ownership. The longer you own a car, the slower it depreciates, often allowing you to pay your vehicle off and still sell it for profit. However, leasing a new car every couple of years means that you are paying for the highest depreciation period.
7. Flexibility: You will often be charged large penalties if you decide to break your lease; whereas, when you opt for ownership, you can sell your vehicle if you no longer need it or cannot afford it.
8. Mileage: Many lease contracts include limited mileages and require you to pay additional fees for overage. This is something that you will not have to worry about if you own your own car.
9. Fees: While loans typically have minimal or no fees, lease contracts usually include additional fees as well as a security deposit that is paid up-front and refunded at the end of the lease.
Deciding whether to buy or lease new car depends on your situation, and our free car lease calculator will allow you to compare the two options so you can see how each will affect your finances or budget.
Top of Buy or Lease New Car.
Return to find more free money saving tips with Practical Ways to Save Money.