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Buy or Lease Your Next Car Which is the Best Option for You
Author David Schneider | May 23,2007
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Buying or leasing a new car can be a big financial decision, since it is one of the major purchases that a person makes during their lifetime. Buying a car is almost right up there with buying a house. This means that it is very important that you make an educated decision on which car option is better for you – to lease a car or to buy a car. There are advantages and disadvantages to buying and leasing a car, so the right decision really comes down to your personal situation.
The Financial Difference
Financially, buying a car and leasing a car are two different ways to accomplish the same thing, which is driving off the lot with a car. When you buy a car you are paying for the entire cost of the car. This usually requires a down payment and paying tax, tag and title costs. Most car purchasers utilize a car loan to finance the cost of the car over a certain period of time.
Alternately, when you decide to lease a car you are not paying for the entire cost of the car. You are really paying for a portion of the car, or more realistically, you are paying to use that car for a certain amount of time. Most leases require some form of a down payment, but it is usually lower than a down payment made on a car that is being purchased. There are also some leasing fees that may be associated with the leasing option as well.
Payments for the purchase of a car and lease payments are also different in many ways. For a financed car that is being bought, borrowers are required to make monthly payments that are made up of two parts – principal to reduce the loan balance and the finance charge for financing the car. On the other hand, lease payments are also made up of two parts, which are different from a financed car. Lease payments are made up of a depreciation fee and a finance charge. The depreciation fee is a fee paid to the leasing company to compensate them for the loss in value that the vehicle is incurring from your usage of the car. Again, the finance charge portion of the payment is the charge that you are paying for using the car. Generally speaking, lease payments are usually lower on a monthly basis than cars bought via financing.
Other Differences
Besides the financial differences there are other differences between buying and leasing a vehicle. Some of the differences may be beneficial to some while others may find them detrimental to their personal situation.
Mileage
Leased cars usually have mileage restrictions. Since you are "renting" the car from the leasing company they limit the amount of miles that the car can be driven while you have usage of the car. If you go over the amount of miles that the leasing company has stipulated, then you may be charged a penalty for each mile that you go over. When you buy a car there are no limitations on how much you can drive the car so you will not owe the finance company any additional money based on your mileage. However, mileage will be a factor in the value of the car if and when you try to sell or trade in the car.
The New Car Option
With a lease, you have the option to turn in the car every couple of years to get a new car and negotiate a new lease or buy a car at that time. When you buy a car you either have to go the dealer and trade your car in for a new car, or sell your car and then use the money acquired from the sale toward the purchase of a new car. There is not an option to just return the car to the dealer or leasing company.
Repairs
Many lease options include maintenance and repair costs on certain items on the car. So if there is a problem with the vehicle during your lease, you simply drive it into the dealer to be repaired. When you buy the vehicle certain items will be covered under the warranty, but general maintenance or anything that may go wrong with the vehicle will be your responsibility to cover the costs for repair.
These are just some of the differences between buying a car and leasing a car. It is important that you analyze your personal and financial needs to see which car option is the best one for you and your needs. |
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