Should I Buy or Lease a car?
If you are in the market for a new car, the question, “should I buy or lease a car” is no doubt on your mind. But who can you trust to help answer this question? This is where doing research will arm you to make the best decision for you and your family.
In general, car dealerships will steer you in the direction to buy or lease a car that helps them make more money. Car dealerships are selective in the information they provide, but they typically won’t blatantly lie. It is easier for them to push the lease because leases offer lower payments than purchasing. Let’s face it, most people only care about their monthly payment and not the total cost of the car, therefore when choosing to buy or lease a car, most people choose to lease. Basing the entire decision to buy or lease a car on the monthly payment is bad thinking and can lead to a very bad deal. It can take years to recover from a bad deal, so be careful. Before deciding to buy or lease car, it might be a good idea to consider the following:
Advantages of leasing
- New car – leasing allows you to get a new car more often. Leases are typically short term ranging from 24 months to 39 months. Longer lease terms are available, but this can defeat the purpose of leasing. Leasing affords you the luxury of having a car in good condition and under warranty throughout your contracted term. If the vehicle breaks down during your lease, it will most likely be covered by the warranty eliminating the need for you to pay for the repair out of your pocket. Leasing also allows people to get into a more expensive or luxury car that they otherwise may not be able to afford – basically more car for your money.
- Lower monthly payments – you will only pay for the depreciation of the car throughout your lease. This creates lower payments because you are only paying for a portion of the car versus the entire car.
- Business deduction – depending on how your taxes are prepared; many people find leasing beneficial because they are able to deduct it as a business expense (consult with a qualified tax professional to learn if this is an option for you).
- Shorter term – you are committing to the car for a shorter term than a traditional purchase. Therefore, if you don’t like the car, or you want to upgrade, you can get a different vehicle sooner.
Disadvantages of leasing
- Limitations – you are contracting for a certain mileage allotment, therefore if you exceed the mileage allowed, this will attract additional charges. Leases typically have mileage penalties between .15 to .30 cents per mile if you exceed the allowed mileage.
- Customizing restrictions – typically you cannot do modifications that are not permitted.
- Ownership – you don’t own the car. You are paying to be in possession of the car for only a short time. The car is not an asset.
- Wear and tear – the lease allows “normal wear and tear,” but if the damage is not considered “normal” by the leasing institution, you will be charged to fix the issues. A common charge at the end of a lease is the cost to replace tires.
- Credit checks – leases typically require better than average credit history in order to qualify for a lease.
Buying is a bit pricier than leasing
- Ownership – you fully own the car and are free to do with it whatever you want with it.
- No restrictions – there are no restrictions on the modifications you can do to the car. The modifications will only affect the resale value of the car. Your driving habits do not affect any issue except the resale value of the car. You can also put as many miles as you want on the vehicle.
Cons of buying a car
- Commitment – loans for a car is typically longer than for a lease. It is common for a car loan to exceed 60 months, 72 months, or even 84 months.
- Higher monthly payments – your monthly payments will be based on the repayment of the entire loan amount, thus making the payments higher than a lease.