The decision to lease or buy your next car depends on a variety of circumstances, both personal and financial. There’s no clear-cut answer to the question, just a list of pros and cons.
What is leasing?
Look at leasing a car the same way you look at renting an apartment. Once a month, you make a payment to lease (rent) a vehicle. Lease agreements are typically short-term obligations that, when completed, offer the option to purchase the car you’ve been leasing. Professionals who travel as part of their jobs make ideal candidates for car leasing agreements.
What is buying?
Ironically, buying a car doesn’t mean outright ownership if the purchase is financed by a bank or other lending source. You still have to fulfill your end of the debt obligation to own a vehicle completely. However, you do receive a title that designates you as the owner of the car. If you pay for a vehicle in full, you become the owner of the car without meeting a financing contract.
The benefits of leasing
Money represents the primary reason why leasing a car is the better of the two options. First, leased cars come with lower monthly payments and in most cases, you don’t have to place a down payment on a leased car to secure a written contract. This means you can upgrade the vehicle you drive by plunking down a little more cash each month. Another money factor is that by leasing a vehicle, you’re covered under the manufacturer’s warranty. You have to spend little, if any, money on automotive repair costs. Sales tax, which is often a financial burden forgotten by consumers, is much less on a leased vehicle than it is for a purchased car. There are no hassles trading in a leased vehicle and leasing a car also allows you to drive a new vehicle every two or three years, which is the typical length of a leased car contract.
Why leasing might not be a good idea
Remember that you don’t own the car you lease at the conclusion of the written contract. You might have the option to purchase the vehicle, but the wording of the contract can include one or more financial strings attached. This means you don’t have access to spare parts in case you purchase a similar model vehicle and you can’t give the used vehicle to a family member. Many leasing contracts impose driving limits of 12,000 miles per year. Although 12,000 miles appears to be a generous allotment, the fact is many commuters exceed the driving limit well before the end of one year. You might come across a leasing contract that requires the services of an expert team of consumer protection lawyers. One of the costly hidden fees found in vehicle leasing contracts is a charge referred to as “excessive wear and tear.”
Why buying makes sense
Buying a car allows you to make modifications on the vehicle any way you want. For example, if you want to upgrade the audio system, you don’t have to seek approval from a leasing agent. Buying a car represents a long-term commitment that saves money over time. The monthly payments will probably be higher, but once you pay off an auto loan, you enjoy a considerable financial windfall. You can drive a purchased vehicle as often as you like, as well as sell the car any time. Owning a car also gives you the flexibility to trade in the vehicle to buy a newer version of the same model.
The problems with buying
Purchasing a vehicle requires a down payment that can be cost prohibitive for some consumers. Monthly payments are usually more for a purchased car than for a leased car. You also have to deal with depreciation costs, which run higher in the first year of automobile ownership. Car owners are responsible for repair and maintenance costs that can be quite costly. You also have the hassle of selling or trading in a purchased vehicle, which includes negotiating with experienced auto dealership sales representatives.
The bottom line
The answer to the question “Should you lease or buy your next car?” boils down to three factors: convenience, vehicle options, and personal finances. You also have to factor in where you are in life’s journey. A parent of a growing family has much different automotive needs than a professional who commutes to and from work by riding a municipal light rail train. Make a list of the pros and cons that apply to your situation and you should have a clear cut answer to the question.