When it comes to getting a new car there are a lot of decisions to make. When making a purchase as large as a new vehicle, it’s wise to do plenty of research to make sure you get the best price you can for the best vehicle for you and the best financing choices available.
One of the biggest choices people need to make when it comes to the financial portion of new vehicle sales is if the buyer would prefer to buy the vehicle outright, or sign on to lease the vehicle. Some auto financial experts say there isn’t much of a difference financially, that it’s more of a lifestyle choice. However, that only applies to certain circumstances, and it’s really a good idea to look into both choices depending on what works best for your personal lifestyle and financial situation.
When evaluating what your final price would be for the vehicle, whether you were to purchase or lease, the first thing you need to consider is how long you plan to keep the car. If you are looking for a short-term vehicle that will not be driven many miles then a lease is probably for you. If you are a person who keeps their cars longer periods of time (five or ten years, or longer), or if you drive higher than average miles, purchasing the vehicle may be a better choice.
Digging deeper, you must also consider the costs that will be associated with driving this vehicle. Typical expenses include:
- Down payment
- Monthly payments
All of these will add to the sticker price you will actually pay for purchase or lease of the vehicle. Unless you are buying a car outright and don’t need any financing, in which case you may not have to make the decision to lease or purchase. But, if you have to make this decision be sure to include these added expenses into your plan.
One consumer advice expert analyzed the cost difference between leasing and purchasing, including all the outside factors one should consider, and came up with the following answers. Evaluating the cost difference between leasing and purchasing a vehicle, after a 5-year period of owning/leasing this vehicle, the cost of owning the car was about $250 higher than leasing the same vehicle under the same set of circumstances.
However, using this same experiment’s parameters, but using a 10-year period of owning versus leasing this same vehicle, the cost differential has increased to an amazing margin of costing $21,000 more to lease the vehicle than to purchase it. Because a leased vehicle requires monthly payments, whereas payments eventually end on a purchased vehicle, long-term leasing isn’t the best financial decision.
So, if the cost is nearly the same when talking about a 5-year plan, what other things should you be thinking about?
Advantages of Leasing
Lower down payments can be gotten just by asking in most cases. Keep in mind, the less you pay up front will mean larger monthly payments.
Lower monthly payments than a new vehicle will be needed because you are not paying the full value of the vehicle, but rather only the depreciation value on the vehicle.
You can easily get a new vehicle every few years, depending on the length of the lease. It’s easy to trade your lease for another vehicle when you don’t have to haggle over the trade-in value of a lease.
Disadvantages of Leasing
You will have no equity and no property after the lease is finished. When your lease is up you have to make a decision what to do next because you will have to give this leased vehicle back to the dealer.
If, for any reason, you decide you want to be done with this vehicle before the agreed-upon lease period is up, you will pay a large penalty for breaking the lease agreement. There is very little flexibility in leases.
Extra miles equal extra fees. If you drive over the allotted amount on the lease, you will pay an extra fee per mile over your limit. You will also pay for any abnormal wear and tear the vehicle has encountered during your lease.
So, if you can’t afford to purchase a car outright, depending on your lifestyle, you could consider leasing a vehicle. There are pros and cons to this decision, as there are in most decisions in life. If leasing fits with your way of life, it at least offers an alternative that some people may not have otherwise considered.