To lease or to buy – that is the question. Everybody seems to have an opinion on the best way to get into a new car. What are the guidelines that can help you decide what car loans, auto leasing and vehicle financing are right for you?
Proponents of buying will tell you that if you lease, you’ll have nothing to show for it when your lease is up. Leases and car loans are simply different methods of car financing. Each has its own benefits and drawbacks. But what about the costs associated with buying a car? The money you pay upfront could be invested in something, for example, that might give you a better return than your investment in a vehicle. We’ll examine the pros and cons of leasing so you can try to figure out which option is the best for you.
Low Down Payment (Capitalized Cost Reduction)
Capitalized cost reduction is basically your down payment, or however much you pay upfront when purchasing a car. The higher your initial payment, the lower your monthly payments will be. Those attractive advertised deals that you’ll see often require a high down payment. You can frequently lower this amount by simply negotiating with the dealer or trading your old vehicle in to satisfy the required cap cost.
Lower Monthly Payments
When you lease a vehicle, you only pay off the depreciation on the car and not its full value. For this reason, your monthly payments can be significantly less than if you decide to take an auto loan, or get traditional financing for the purchase of the car over the same time period.
When your lease is up, if your car is in good condition, you can simply hand it back and get into a new lease on a brand new vehicle. No need to go through the stressful process of selling your car or negotiating with a dealer about trade-in value.
Always Drive a New Car
One of the big advantages of leasing a car is that as long as you lease another vehicle when your lease is up, you never drive a car that is more than 2 to 4 years old. And that means low maintenance and the potential for a virtually trouble-free auto experience.
The lease payments you make on your car do not give you ownership of the vehicle. Unlike with traditional car financing, when your lease is up and your payments stop, you do not own the car.
Most lease agreements allow you to drive 12,000 to 15,000 miles per year. If you go over your allowed miles, you’ll have to pay an excess mileage charge between 12 cents to 15 cents per mile depending on your lease. It’s a good idea to check your records to see how many miles you average a year. In addition, you are responsible for damages to your vehicle beyond normal wear and tear and for other costs you agreed to when you leased the vehicle.
Early Termination Penalty
If you want to break your lease agreement before the end of its term, you stand to pay a big penalty. Depending on your leasing company, you could be required to pay a significant amount of money.
In the unfortunate event that your car is a total loss or stolen, your insurance company will only cover the market value of your car. This might not cover the amount you still owe on your lease. You can purchase gap insurance to protect yourself against this kind of situation. GAP Insurance is included in most lease agreements, but make sure to double check.
So…Lease or Buy?
There is no simple answer to whether it’s better to lease or buy a new or used vehicle. Each has its own benefits and drawbacks and everyone’s situation is different. The above information can empower and help you make a smart and educated decision.
Are you a leaser or a buyer? We’d love to hear your opinions.