Should You Lease or Buy Your Next Car?
Have you ever been in the market for a new vehicle and wondered whether you should buy or lease? In recent years leasing a vehicle has become very popular and carries some definite advantages depending on certain individual preferences, but before deciding whether to lease or purchase a vehicle there are a number of important factors to be considered. At the very least, examine your options so you don't make a mistake buying your next car.
The basic concept of leasing is explained by : "When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it...When you lease, you pay for only a portion of the vehicle's cost, which is the part that you "use up" during the time you're driving it." Think of leasing a car like renting an apartment. You never own the apartment in which you reside, but you simply pay for the use of it. Obviously, just like renting vs. buying a house, there are advantages and disadvantages of this method.
A primary consideration is to evaluate how long you intend to keep the car. If you are the type of person who likes to have a new car every couple of years, leasing may the better option. This doesn’t mean it will be the cheapest option, but if having a new car regularly is important to you this can save you the hassle of always trading in or possibly selling your car for a loss if you owe more than it’s worth.
Benefits of a Lease
- You can regularly upgrade to new or different models every few years when the lease is up.
- The car will almost certainly remain under warranty, meaning you’re covered in the event of a major repair.
- Depending on the specifics, a lease may come with a lower monthly payment compared to purchasing the same vehicle with typical loan terms.
- You pay lower sales tax since you aren’t paying tax on the entire vehicle purchase price.
Cons of a Lease
- Not all deals are created equal. In some markets, a lease may end up being more expensive or require thousands of dollars up-front.
- Terminating the lease early can be very costly.
- Mileage restrictions can be killer. If you have a long commute to work or do a lot of long-distance driving, you may be out of luck. Many leases have fairly tight mileage restrictions, and going over the limits can cost thousands.
- Since it isn’t your car, you’re generally not allowed to make changes or modifications to the vehicle.
There are two types of lease agreements which must be carefully considered as well. In a closed lease agreement, once the agreement is satisfied you do not have the option of keeping the vehicle. An open-lease agreement carries the option of negotiating the purchase of the vehicle at the end of the agreement.
Many people consider leasing versus vehicle purchase to be “hassle-free.” At the end of the lease, there isn’t a trade-in to deal with and no need to attempt to sell the vehicle in order to purchase another. On the other side of the coin cancellation of a lease agreement can be very costly since you must pay an early termination fee.
If the vehicle is stolen, the leasing company may expect you to pay the balance of the lease (unless you purchase gap coverage).
In the end, there isn’t a right or wrong answer and it really depends on what you need out of your vehicle, your driving habits, and budget. So, before you make your next vehicle purchase be sure to go through all of your options and see what makes the most sense for you.