Are you in the market for a new vehicle? Have you considered the options of buying or leasing? If you are wondering which option is best for you, the truth is that it depends. The specifics of each situation must be evaluated to make the final decision. Leasing works great for some people and not so good for others. You may not qualify for a lease if you have bad credit, not enough income, or do not meet the other requirements. Consequently, if you are considering leasing, you need to make sure that a lease is the best option for you.
Lease vs Buying: The Basics
First, you can only lease brand new cars, not used. Some states will allow leasing of used luxury cars, but there are not many. There are two different methods of vehicle financing, leasing, and purchases. Though many people feel it is like renting a car, it is a bit different. Think of an apartment lease with definitive terms and stipulations. At the end of the period, you either can renew or move on. Only in the terms of car leasing, you can buy it outright or give it back to the dealer.
Ask Yourself These Questions
*What do you need from your automobile? Are you looking for a vehicle that will last you for 10 years or, perhaps, you like to drive a new car every few years and not deal with the headaches of repairs? When you drive a car beyond the warranty period, repairs are a consideration.
*How important is the payment? Do you want a lower monthly payment but a higher long-term cost, or do you prefer to have a higher initial monthly payment, but the car will be paid off in a few years?
*How many miles do you drive each year? If you have unpredictable mileage, then you may not want to enter into a lease. If you just use your car for joyriding or a short commute, then a lease will be perfect.
There are pluses and minuses and pros and cons of both leasing and purchasing. The decision is not so cut and dry. So, let’s compare leasing versus buying.
Comparing The Options
During a lease period, you don’t pay the vehicle’s total value, rather, you only pay a portion of it. Basically, you pay for the share of the vehicle you are using during your lease term. In most states, you have the option to forgo the down payment and only pay the sales tax on the monthly payments. You must also pay the money factor, which is very similar to the interest on a purchase.
Your first payment is due when you sign your contract. So, you are paid a month in advance. At the end of the lease, you have the option to return the vehicle or buy it outright. You must pay for the value that you have not already paid during the lease term if you want to purchase it. Your contract will have the purchase price listed when you sign the documents. There may be a lease-end-disposition fee, and the cost of any excessive mileage is due at the end of the term. If you purchase the vehicle, you do not have to pay these fees.
During a purchase, you are paying the entire value of the car off in monthly payments. It doesn’t matter how long you keep the car, you are responsible for the entire balance. A monthly payment is always about 60-100 percent higher than a lease payment, on the same car. A down payment of between 10-20 percent is due up front as well as any trade-in vehicles you may have.
If you decide later to sell or trade off the automobile, you will be responsible for its depreciation. You may have a negative equity balance. If the vehicle’s current value is less than the amount owed, you are responsible for the difference. Keep in mind, cars will depreciate regardless of how they are financed, but in a purchase, you are responsible for that depreciation.
Making The Right Decision
Leasing is a bit more complicated for some people because of the acquisition fees and money factors. However, buying can be complicated too. It just depends on what you need and your monthly budget. Making a good decision, regarding your purchase, is the key to financial responsibility.