Many people are confused about the differences between these two popular ways of obtaining a new car. It is important to understand some basic concepts related to both leasing and buying a car so that you can make a more informed decision. While leasing might not be for everyone, neither is buying. There are some advantages and disadvantages to both depending upon your own personal situation. Consider the following information and take it to heart before heading out the dealership the next time you are in the market for a new. This will help you make a better financial decision in the end.
Ownership and Leasing Are Entirely Different
The first thing to understand about a lease is that the dealership retains the title to the car. You will just gain the rights to drive the vehicle for the term of the lease, which is usually three years. If you enjoy making a lot of modifications to your car and having a title that is actually in your own name, buying is an appealing option. You do get the title (assuming you have made all finance payments on the vehicle), and you are able to do with the car what you wish from the very moment that you leave the dealership. This also means, however, that you carry the full financial burden of depreciation and needed repairs, among others, as a result of owning the car.
Depreciation Comes Into the Buying Process
If you decide to buy a car, you must do so with the understanding that the car will lose considerable value by the time you drive away from the dealership. Known as depreciation, this can often amount to thousands of dollars. If you plan on keeping the car for quite a long time, this might not be that big of a deal to you. If you are the type of person that likes to buy a new car every few years, however, you will find that you have difficulty selling the car for what you feel it is worth. Even worse, you might actually owe the bank more for the car than it is actually worth. To combat this, a lease might be more appealing as you get a new car every few years, and the payments are typically much lower anyway.
How Good Is Your Credit?
This is an important question to consider as well. To get the lowest possible lease payment, you will need some pretty good credit. Remember that the dealership is giving you permission to drive their car for a few years, so they want to make sure you will be paying them each month when the bill comes due. When you go to buy a new car, you might find that you qualify for financing even with poor credit, but your interest rate will go up. Regardless, the payments for a lease typically work out to be much lower if you have the credit to support it.
Need Upkeep and Repairs
The more you drive a car, the more likely it is to encounter a need for repairs. When you own a car, these will be your responsibility. Sure, many such repairs will be covered by a warranty for a time, but others will not. Once you reach so many miles or a set number of years, all repairs will be your financial responsibility. With a lease, however, the limited mileage that you get encourages you to create much less wear and tear on the vehicle. As such, you will get a like new car for the duration of the lease, and no repairs will likely be necessary. Even if they are, the car will be covered under that same manufacturer’s warranty for the duration, so you will not need to worry about paying for it.
This information should provide you with some good food for thought as you set out to choose your next new car. Remember to weight your options carefully and decide which is best for you and your own financial situation. Take a look at the lease options, however, because you can often get a really nice car for spectacularly low monthly payments.