Auto Financing - Buy or Lease?

Buy or Lease?

Buy or lease, which is better?

Leases and loans are simply two different methods of automobile financing. One finances the use of a vehicle; the other finances the purchase of a vehicle. Each has its own benefits and drawbacks. Which to choose depends on your own particular situation and personal preferences.

Here is the close look at the comparison.

Buying	Leasing
You pay for the entire cost of a vehicle.	You pay for only a portion of the vehicle's cost, which is the part that you "use up" during the time you're driving it.
Monthly payments are higher than lease payments, but they go towards equity on your car.	You get to drive a better car for a lower monthly payment.
You typically make a down payment, pay sales taxes, and pay interest determined by your loan company.	You have the option of not making a down payment, You pay sales tax only on your monthly payments and pay a money factor that is similar to the interest on a loan. You also pay extra lease-related fees and possibly a security deposit.
Maintenance is voluntary. No charges for excessive wear and tear. No mileage limit or limits to modifications.	Car leases come with strict rules. Routine maintenance is required. There are charges for excessive wear and tear, mileage limit and charges for any modifications.
You don’t need any special insurance other than what you must legally carry.	You must obtain Gab insurance, which pays the difference between what you owe on your lease and what your vehicle is actually worth if your vehicle is stolen or destroyed.
You are responsible for any pay-off amount if you end the loan early.	You are responsible for any early termination charges if you end the lease early.
When you pay off the loan, you own the car. You can do whatever you want with it; you can keep it or sell it with a good price.	At lease-end, you don’t have the hassle of selling or trading in your old car; you can just return the car.

Buying has a financial advantage over leasing

It’s easy to believe that leasing is a better deal, because the monthly payments and down payment typically are lower than they are for loans. However, buying a car is usually better than leasing for the consumer, especially if you shop carefully to find a good used vehicle. Buying a car is, in general, more expensive initially and the monthly payments are higher. But at the end of the loan, the buyer will own a car of some value while the leaser won’t. As you can easily figure out, the longer you keep the car, the more it makes sense to buy a car than to lease one.

In a sense, the advantage of buying a car is akin to that of owning a home rather than simply renting it. What’s different is that, unlike a home, a car depreciates in value over time. Leasing advocates argue, “Buy assets that will appreciate in value, rent or lease depreciating assets.” They say, with leasing, you have the option of putting your monthly payment savings into more productive investments, such as mutual funds or stocks that have the possibility of increasing in value. However, most people typically find other uses for the money they save by leasing — such as paying the rent or buying other commodities.

One of the most important problems with leasing is that it forces a customer into an expensive “ownership” pattern: short-term possession of a new vehicle. When the lease contract is over, you will most likely to return the car and lease another new vehicle. Remember a new vehicle usually depreciates from 30 to 50 percent in the first three years. When you lease a car, you are paying for the most expensive years in a vehicle’s life.

When leasing makes sense

Although buying a car has a financial advantage over leasing one, you will have to make the decision based on your lifestyle and your situation as much as on financial considerations. Leasing can makes more sense than buying if:

You like to get a new car every two or three years. – If you feel that driving a new car is important, you are willing to shoulder the extra expense to do so. Not only do new cars rarely break down, the warranty almost always covers the repair costs if they do. You can also eliminate the messy process of haggling over the value of your trade-in.
You take good care of your vehicle. – Leasing contracts call for the customer to keep the car in good condition. That means having all the factory-required maintenance done on time and avoid any damages such as dents, scratches, stains, missing or broken accessories that can add up to excess wear and tear.
You know for sure you will drive no more than the mileage limit in your contract. –If you go over the yearly mileage limit, you will have to pay for extra mileage.
You know you’ll keep the car for the full term. – If you have to cancel the contract before it expires, penalties can be severe.
You have the necessary credit to qualify for a lease. -- Bad credit is a hurdle no matter which avenue you choose, but it’s most likely to disqualify you from leasing or make the terms of a lease for which you could qualify unattractive.
You want to drive a nicer vehicle than you could afford to buy. – However, chances are something else in your financial life will get shortchanged.

A lot of drivers pay thousands more to lease the same car they went in to buy. Commonly, these buyers are talked into a lease without understanding all the leasing details. Make sure you are perfectly clear on every step along the way and know exactly what you are paying, when and what for, before you sign a lease.