Not sure whether to buy or lease your next vehicle? You’re not alone! This is a decision that should be revisited periodically, because as the size of your family and/or lifestyle changes, the considerations and analysis must be tailored to meet your needs at a particular time in your life.
Although there is an overwhelming amount of information, research, and advice out there, you and your family are those who will have to live with the decision you’ve made for at least two years and possibly many, many more years! So in an attempt to save you some valuable time, we’ve compiled the basic pros/cons for leasing vs. buying based on lifestyle situations.
Pro: Both your down payment and your monthly lease payment can be much lower than if you’re buying the vehicle. Since the monthly lease payment is only taking into account the depreciation of the car and not the full price of the car, the payments are usually much lower.
Pro: If your car is in good condition when you turn it in at the end of the lease (usually two to four years later), you would just turn the car in with nothing due, pick out a new car, sign a new lease agreement and leave the dealership without having to haggle a trade-in value, sell the vehicle or even have to think about it again.
Pro: When you lease every 2-4 years, you are driving a car with the latest and newest safety features and other technology.
Con: If your car is not in good condition (dings, scratches, dents, etc.) and/or has higher-than-agreed-upon mileage, you will need to pay for the damage that’s considered “over and above normal wear-and-tear,” as well as excessive mileage at a rate of as much as $0.15 per mile over the agreed limit. These seemingly small costs can and do really add up, and all must be paid for before you can walk away from that car and lease or buy a new one!
Con: Discuss any issues with your auto insurance agent before deciding to lease. Your insurance may only reimburse the market value of the car if you are in an accident which totals the car or if the car is stolen. This market value may be lower than what you still owe on the lease, but you would still be responsible to pay the lease off. There is, however, an extra coverage you could purchase to cover that “gap.” In addition, most leases require the lessee to carry maximum collision coverage for the term of the lease.
Con: Once your lease is up (usually two to four years), you have to decide whether you will keep this vehicle and finance the rest of the cost, or turn it back in and start the process again of deciding whether to lease or buy. If you decide at this time that buying is what you wish to do, you have no trade-in value, or equity, to use to bring the cost of the car you are purchasing down.
Con: If by chance you find that you must get out of the lease before the term is up, you will probably pay a huge penalty.
Pro: Assuming that you take good care of your vehicle, there will be residual value to it after you’ve paid it off. You can use this residual value to trade-in and bring the price of your next car down.
Pro: Once you have paid off your vehicle, it belongs to you free-and-clear! Therefore, if you decide that buying or leasing another vehicle is not in your budget at this time, you can just keep your vehicle and continue to keep it maintained for as long as you like.
Pro: If you find that your lifestyle/budget has changed since you started the financing of your vehicle, you have some flexibility to trade the vehicle in and buy something less expensive. Of course, your best bet for this is to return to the dealer where you purchased the car because they will know you and the car’s history better and be able to give you a better deal that will fit your new lifestyle/budget.
Pro: Once the car is paid off, the owner has the option to drop or decrease the more expensive collision coverage on his/her insurance policy.
Con: It would not be financially feasible for you to trade a vehicle in every two or even four years if you are financing (purchasing) a car. There would be a payoff due on the car and unless you have the cash on hand to pay this, it would end up being tacked on to your financial agreement for the new vehicle, which makes your monthly payment higher and possibly your term longer.
Con: Because you are paying a portion of the cost of the car each month, plus interest, your monthly payment is likely to be much more than a lease payment would be.
Con: Driving the same car for a longer period of time deprives you of the benefits of newer technology, including the latest safety equipment/methods.
So now that you know some pros and cons for each option available when you get a new vehicle, what are some of the considerations you need to explore before you make this potentially large financial decision?
MarketWatch.com offers a free lease vs. buy calculator on its website, so be sure to check it out! (www.marketwatch.com) They also offer a list of questions to ask yourself to help you to make the right decision for you and your lifestyle/family.
Briefly, they are:
- Cash flow. Leasing is your best bet if you have pressing current cash needs.
- Frequency. Leasing is the way to go if you want a new vehicle every two-four years.
- Mileage. If you typically put more than 12,000 miles per year on your current vehicle, buying is the better option for you. Most leases only allow between 12,000 and 15,000 miles per year and if you exceed that, you’ll pay a great deal of money for overage.
- Business use. If you are able to deduct some of your car’s depreciation on your taxes because you use it for business, leasing is the way to save you money in the long run (provided it’s not considered a “luxury car”).
- Resale value. If you use your car to haul things, and/or carpool with kids and their equipment, etc., you will probably incur some damage to the vehicle, both inside and out. If this is the case, you will pay a premium for that damage when you turn in the leased vehicle. So buying the vehicle would be a better deal for you. Conversely, if you are meticulous about caring for the look and running of your vehicle, leasing it will definitely save you money.
- Stability. If you see changing lifestyles, new jobs, moving and the like during the next 3-4 years, leasing is not the option for you because you may have to terminate the lease early and that is a costly move.
- Trust. When you buy, the financing company or bank gives you the money up front and you get your vehicle. With a lease, you’re entering into a relationship with a company that doesn’t necessarily have your best interests in mind. If you do decide to lease, it is best to lease from the dealership, especially if you have a long-standing relationship of leases or purchases with them. They want your repeat business and will be more likely to provide “gap coverage” in the lease and a purchase option at a fixed price.
We hope that we’ve provided you with “food for thought” about the concepts of leasing vs. buying vehicles. However, if you would like more a more detailed analysis of leasing vs. buying, be sure to contact our sales manager or drop in and speak with us about this! Click here to see our current inventory. www.tischerauto.com We look forward to helping you find the perfect vehicle for you!
Sources: Marketwatch.com, consumerreports.com, edmunds.com