Buying vs. Leasing
When you’re in the market for a new vehicle, a typical question you might ask yourself is whether you should buy or lease. While there are pros and cons for both buying and leasing, there are many differences you may want to consider.
When you lease, your total monthly payment is only financing the deprecation that occurs during the lease term. A lease term is usually around three years, with a monthly payment cheaper than a monthly loan payment. After determining your down payment and the value of your trade-in (if you have one), you pay the residual value. The residual value is the difference between what the car is worth and it’s expected worth at the end of the lease term.
There are many leasing offers that allow you to put down small down payments up front. Anywhere from zero to a thousand dollars down can potentially still keep your payments small when you’re leasing. Depending on your monthly income, your credit score, and how much you plan to put down upfront, you will be able to determine if leasing is right for you. A big advantage that comes with leasing is the fact you get a new vehicle every three years.
Although you get a new vehicle every three years, it is very important that you maintain and keep up with the vehicle’s required maintenance. This includes oil changes, tire rotations, etc., to ensure the vehicle is running properly throughout each seasons. You also need to keep in mind that leasing a vehicle limits your mileage. Typically, most leases will allow anywhere between 10-15 thousand miles a year. You need to consider how much and often you drive a year, as each mile you go over will end up costing you.
On the other hand, buying the vehicle may help you in the long run. The vehicle will belong to you, you don’t need to worry about how many miles a year you drive, and you will earn equity on the vehicle. Eventually, after owning a vehicle for a long time, you may want to sell it. That comes with having to know its market value and avoid obtaining negative equity. Now-a-days, technology has made it easier for us because there are online tools that allow you to see just how much your vehicle is worth.
Since monthly loan payments are potentially higher than monthly lease payments, it may take longer to pay the loan off if you’re not able to keep up with the payments. This could ultimately result in a higher interest rate, costing you more money out of your pocket.
As you can see, there are many factors to consider when you’re about to buy or lease a new vehicle. Just make sure you do your homework and decide what best fits your lifestyle and what you’re most comfortable with.
U.S. News. Best Cars. Buying vs. Leasing. November 2016.