Choosing whether to lease a new vehicle instead of buying it largely comes down to priorities. For some drivers, leasing or buying is purely a matter of dollars and cents. For others, it’s more about forming an emotional connection to the car. Before choosing which road to go down, it’s important to understand the key distinctions.
What is a lease?
A car lease is a contract between the driver and a car dealer that agrees to cover the cost of a new car for a specified time (known as “lease term”). The contract guarantees that the buyer will return the car at the end of the lease, and makes sure that payments won’t go up during the duration of the lease. By contrast, a loan is more like a traditional, permanent loan from a bank. It provides the car buyer with a lump sum payment – known as the down payment – which is the amount the owner of the car will pay toward the purchase price of the car. If the car buyer decides that they do want to own the car at the end of the lease, they must pay the full price of the car upfront (called “forever payments”).
Advantages of Leasing a car
Leasing offers a lot of benefits for drivers who lease new cars: It’s a simple way to own a car. It’s easy to check-in and out of a lease. Because you don’t have the added cost of owning a car, there are fewer variables to manage. There are some tax benefits. There are many different ways to get car tax paid. Leasing is another option for those who don’t want to do the math to figure out how much tax they’ll owe. Leasing a car has many advantages as well. You can easily drop the payments on your lease, and you don’t have to worry about returning the car if you change your mind. Leasing is cheaper than buying a new car. Another advantage is the fact that you can own the car as long as you’re willing to pay for a maintenance contract.
Disadvantages of Leasing a car
It’s worth remembering that leasing can come with some major drawbacks. If you don’t pay down the balance of your loan, you’ll owe a monthly fee, even if the car is paid off at the end of the contract. For some drivers, leasing is a quick way to rack up high monthly payments, which eats into the budget. Leasing also means the car might not be the right size for your needs.
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Advantages of Buying a car
Buying a car has many advantages. There are no monthly payments to think about. You can buy as much or as little of the car as you want. You can always sell it if you decide it’s not working for you. Not everyone wants to deal with the hassle and headaches that come with ownership, though.
Disadvantages of Buying a car
Buying a car is not an inexpensive proposition. In fact, according to Edmunds, the average sticker price for new cars sold in the U.S. in 2017 was $35,558. However, there are some crucial costs to consider before making your decision. “Even with the best interest rate, financing isn’t always the best way to get the lowest price,” said Michael Hitchings, president of Car-Buying.com. “When looking for a car, you have to consider what you’re getting and what you’re giving up. Buying a car can cost $1,000 more or more than if you lease.” Also, dealers and private sellers offer a wide range of financing options. In fact, one survey by the financing comparison website CompareCards found that 63 percent of car shoppers who purchased a vehicle in 2016 did so with a loan or lease.
Maximizing Tax Deductions
A lease makes sense if you expect to keep the car for a long time. In addition, a car lease can take the pain out of paying car tax and registration fees. With that in mind, a car lease usually has a lower monthly payment than a traditional purchase and is often cheaper to finance as well.
Leasing isn’t for everyone, but if you’re unsure about how much you’ll be using a car every year or two, and you don’t want to be locked into a long-term car payment, leasing might be your best option. It’s no secret that these days, leases on used cars are incredibly expensive, so you’ll want to have ample time to negotiate a lease deal that fits your budget. The biggest downside to leasing a car is the payment. For short-term, casual leasing, the up-front cost is more or less unavoidable. For example, you might not be able to trade in your car once you’ve been leasing it for six months or more. When the lease ends, you’ll have a huge payment to contend with – and there’s no option to extend the lease.
How to Find the Best Car Purchase Deals
Buying a new car is typically the most economical way to go. Compared with the lifetime cost of leasing a car, buying a new car is typically more affordable. The price of buying a new car is determined by how long you will own the vehicle, as well as how much you’ll pay in lease and maintenance fees.
Invest in the brands you love
When it comes to selecting a new car, consumers could have a narrow set of options when deciding on which brand to go for. When considering a sedan over a crossover, for example, consumers can typically go for a sedan because of its handling capabilities, comfort, safety features, reliability, and available options. This makes it a more straightforward choice than choosing between, say, the Audi A4 and A5. But this is only true when choosing an upgrade over an equivalent luxury car. It’s not easy to pick between two brands when it comes to choosing their next car, but for some drivers, their values and passions are tied to particular brands. Those with a passion for certain car brands, in particular, may be more likely to go with them over competitors.
Cars are extremely expensive and people are extremely fickle when it comes to their needs and requirements. It’s rare that you find a car that can satisfy all of your needs. Instead of making a hasty decision, think through your wants and needs. It’s best to spend a few hours researching each car on the market to ensure that it meets all of your demands and needs.
“If you have any feedback about should I buy or lease a car that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”
NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.