Today’s societies are highly dependent on motor vehicles for transport both far and wide, and within walking distance. It is estimated that over 91% of families all over the United States, from low- and high-income settings, multiple race backgrounds, and any other demographic, own a working motor vehicle. Unfortunately for those with outdated cars, those in processes of purchasing cars, and anybody else that just wants a new car, vehicles – sit up straight, fasten your seatbelt, and prepare for a rough landing, – do not grow on trees.
As such, vehicles are often obtained for consumer use, including individuals, families, children, and spouses. Cars, trucks, vans, and other mechanical means of transportation are most commonly either leased or purchased with cash.
A primary difference between leasing and purchasing is that leasing is very similar to renting. Payments are submitted weekly, twice monthly, or monthly to maintain the use of a leased vehicle that does not necessarily belong to the lessee, or person driving the car.
Those who purchase vehicles can do so either by financing for those who do not have sufficient cash laying around; or engaging in outright cash purchasing.
There are many benefits to leasing and downsides to purchasing that are to be explained in this article. Keep the following ideas in mind when considering whether to purchase a new or lightly used vehicle, as leasing features several economic advantages.
Leasing’s Monthly Payments are Much Cheaper
Because lease payment installments are based on the expected wear and tear, known by car dealers and agents as depreciation, tacked onto the car throughout the duration of its current lease term. Actual depreciation is often different – usually more extensive and prevalent – than expected and budgeted depreciation, providing a turnout of favorable lease results for the lessee.
The amount of payments required to satisfy leases are pretty much the expected depreciation plus interest, fees, and applicable taxes. Purchase price of vehicles is equivalent to the price needed to fairly exchange ownership to the purchaser.
For example, let’s say Johnny Boy Fresh is considering either purchasing or leasing a vehicle at a dealership lot, The Dimmadome. After hours of searching, Johnny Boy Fresh has decided on a car with a fair value, or expected cash purchase price, of $17,500. Dealership representative at The Dimmadome have extended a lease offer for a term lasting three years for $7,500 in total.
The Dimmadome is suggesting that anticipated depreciation is slightly less than $7,500 over that period of three years. We know expected depreciation is less than $7,500 because interest and fees must be included in the $7,500.
If Mr. Fresh were to lease that car, he would pay around $209 per calendar month. He would also likely be expected to pay a small security deposit, an amount used to mitigate potential defaults on the lease.
If Johnny Boy Fresh had a change of heart and purchased the car, he would submit $17,500 plus taxes and dealership fees to obtain the vehicle’s title and become the sole owner of that vehicle.
Leasing Carries Fewer Expenses and Liabilities
Despite the relatively higher cost of car buying as compared to car leasing, buying and subsequently owning requires more repairs. Leased cars are always under warranty from either manufacturer, dealer, or both. These warranties cover expenses related to break downs, repairs, and regular maintenance. Car leases, despite their lower cost, bring lower expenses to lessees as compared to car buyers.