What should you consider? Buying or Leasing a car?

Buying or Leasing a car

The choice of whether to buy or lease is almost always the dilemma of every prospective car owner. If you are looking at either buying or leasing your next car, it is important to consider several factors in order to make an informed decision.

The biggest difference between buying or leasing a car is that with leasing, you get to use a new car after the lease period (usually less than four years). You also don’t need to about selling the car later; just take it back to the dealer.

Conversely, when you purchase a car, you have the option of buying it outright if you have the cash, or taking an auto loan to finance the purchase. After you pay off the loan, the car is yours to do as you please. If you are considering buying or leasing a car, here are some factors you should look at before deciding:

How much can you spare for initial deposit?

Lease agreements usually have a lower down payment when compared to if you are buying a car. In some cases, you could even get the dealer to waive the initial deposit. When you’re buying however, your down payment is higher. You also pay more on sales tax if you are buying a car.

Your income

Whether you decide to buy or lease a car, you will have to make a monthly payment to either your car dealer or the institution financing your auto loan. The monthly payment of a car on lease is smaller than that of a financed car. This is because the car is on lease and you are paying for using it for the duration of the lease. If you will be needing your monthly cash flow to be more liquid, you’ll be better off leasing a car.

Yearly mileage

If you are planning to lease, expect to pay more if you exceed a mileage of 17000 miles (may be less depending on the dealer). According to smart money you may have pay up to 20 cents per mile. If you love driving, you would be better off buying your car than leasing.

Is the car for business?

If you lease a car for business, some parts of the depreciation and cost of financing can be removed from your taxes. There are no deductions on interest loans when buying a car.

Car Maintenance

If you are a greenhorn in driving, or your likely to get scratches and dents on your car, you may have to consider buying a car. This is because you will have to pay for wear and tear on a lease.

Another problem arising from this scenario is that you do not have any idea of how much fee you will pay until you turn in your lease. This basically leaves you at the mercy of the dealer.

What duration do you have need the car for?

If you are the type that loves getting a new car every few years, a lease is best for you. If on the other hand, you don’t mind owning a car for ten years then you will save more buy buying a car. According to some expert you save more by buying a car in the long run.

Flexibility

You will be severely penalized if for some reason (let’s say you lost your job) you decide to turn in your lease before its expiration. On the other hand, it is entirely up to you if you decided to trade in or sell your car and use the proceeds to pay off the loan.

Miscellaneous factors

If you cannot stand having to deal with vehicle repair bills, or you want to have the latest technology in cars, then leasing may be the wise choice financially.

If on the other hand, you don’t like confusing legal terms and conditions, you should go with buying a car.

Now that you know factors you must consider when deciding whether to buy or lease a car, let us look at the pros and cons of each side of the coin.

Pros of buying your car

  • You can customize it according to your taste.
  • Buying a car is more cost-effective in the long run.
  • You can sell the car whenever you want with no worries.
  • You can drive as much as you want with no mileage penalty
  • The car can be used as a trade in on your next car

Cons of Buying

  • Your down payment would be much higher than if you lease.
  • Your money is tied up on the car.
  • It may be difficult to sell it when you decide to.
  • Your monthly payment on the car will be significantly higher than a lease.

Pros of Leasing

  • You get a new car with warranty and little or no repair costs.
  • There is lower initial deposit for a lease.
  • You get tax deductions if you are a business owner.
  • You don’t have to face the difficulty of selling the car after use.
  • Your sales tax would be less.
  • You can drive a car with the latest technology at little cost.

 Cons of Leasing

  • The car is not yours, so you cannot customize it as much as you may like (there is usually an option to buy the car at the end of the lease period) You can also check to see if buying your leased car is a good idea.
  • You may have to pay for outrageous wear and tear fees.
  • It is really expensive to terminate a lease before expiry.
  • Your mileage is limited.
  • A leased car is more expensive in the long run.
  • The legal terms and agreement on a lease can be confusing.

Final words

Making the right choices boils down to finance, personal taste and purpose of the car. We recommend buying a car if you are looking at saving cost long term. For further information do check out the buy or lease calculator on dinkytown. Also check out the Bank rate calculator wizard that helps you calculate interest rate and credit ratings.

 

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