Buying vs Leasing a Car

Deciding whether or not to buy or lease a car is purely a personal choice. The final decision should take into account the employment status of the individual, specific vehicle needs, and financing options. Experts suggest that majority of drivers have bought their cars through loans or straight cash. The remaining number encompasses drivers who have chosen to lease instead.

Both options come with their advantages and disadvantages. A great place to start making your decision is with a buy vs lease calculator. It is important to keep in mind that the calculation is based on paying straight cash rather than financing. This calculator can help you determine whether leasing is a better option for you. Once you use the calculator, you must then weigh the advantages and disadvantages of both options before you make your final decision.

Advantages and Disadvantages of Buying a Car

The most obvious advantage of buying a car as opposed to leasing is equity. Your payments go towards ownership of the vehicle. Once your financing term has ended, you still have a car to show for the money you have paid. For many people, the feeling of having a car to drive without paying payments is highly valuable. Whether you paid straight cash or you financed the car, you can continue to drive the car as long as it can move.

The other advantage of having a bought out car is that you can always sell it once the term ends and obtain part of the money you initially paid. When you sell your car, you can use the money as a down payment for a new car.

A disadvantage here is that the vehicle's depreciation rate will not allow you to place just any selling price. Vehicles lose up to 45 percent of their value just within the first three years. You must sell the car for the current market value in order to compete with other used car sellers.

The number one disadvantage of buying a car is the expense. Monthly payments of financing a car are high. This also means that you will have to put a higher down payment in order to lower the monthly payments. Additionally, lower monthly payments mean less interest paid.

Economically, a bought car can create far more repair and maintenance problems down the line, especially when it is used car. When the car is financed, the owner is responsible for all repairs and service maintenance. Although new cars come with warranty to cover the cost of certain problems, warranties expire after a year or two. Extended warranty would be a better option considering that cars do not give problems until their third year.

Advantages and Disadvantages of Leasing a Car

Most people who decide to lease a car are driven by the idea of having a new car to drive every three to four years. Once the lease term has ended, you can immediately lease another brand new vehicle. Having a new vehicle every few years ensures that you are driving a technologically advanced and safe car.

Additionally, leased car customers benefit from lower monthly payments compared to those who have financed. This is because you are only paying for the depreciation rate of the car. When financing a vehicle, you are paying for the full amount. The down payment is also lower for leasing a vehicle. While it is better to pay a higher down when buying, it is actually better to have a low down payment when leasing. This is because you do not have any equity when leasing and any money you put down is considered a loss.

At the end of a lease term, you have the option of trading the car in or buying it out. If the car is in great shape, you can easily lease a new car. You may be responsible for minor dents and dings. Many people choose not to hassle with a dealer for trade-ins and decide to get a new lease arrangement or finance the remainder of the car. Although financing results in paying more in interest, the benefit is that you can continue driving your car and paying lower monthly payments. At the end of your financing term, you will have a car to drive for as long as necessary. Finally, another advantage of leasing a car is primarily for self-employed consumers. A leased car can be written off as a business expense for taxes.

When the term of lease ends, customers are subject to paying extra for mileage which is a major disadvantage for commuters. Dealerships charge 12 to 15 cents for every mile driven over the limit. This limit is declared in the leasing agreement and is usually 12,000 to 15,000 miles per year. To avoid paying these fees, you can buy more miles for a less amount up front. If the vehicle has any wear and tear when you turn it in, you will be responsible for paying for the damages.

The obvious disadvantage of leasing a car is not having ownership at the end of the term. Most people consider this as sending money down the drain. Aside from a bad investment, leased cars have strict terms. You may have to pay penalties for coming out of the least before the term ends.

Clearly, deciding to either buy or a lease a car involves making financial and personal choices. You will have to consider the stability of your life, the resale value of the car, the purpose of your car, and how often you will be driving it. You must assess all the advantages and disadvantages of either side and determine what is most important for you.