Is It Better To Lease Or Buy a Car?
Tuesday, March 10th, 2009NEW CAR TECHNOLOGY:
Some drivers want a new car every three years, so that they have all the latest technology, while other drivers buy a new car and then keep it until it falls apart. With a lease, the vehicle is always under three years old. With a purchase, the vehicle is eventually owned, but by the time it is paid off, there’s lots of new technology available.
PAYMENTS:
The payments on a lease will always be significantly less than the purchase payments on the same vehicle. On a lease, the driver pays for the part of the car used (depreciation) while on a purchase, payments are on the entire vehicle.
CREDIT:
Obtaining a loan on a vehicle purchase is far easier than getting a loan. Those with average or poor credit will most likely not qualify for a lease.
INITIAL OUT OF POCKET COSTS:
Leases only require the first month’s payment, first year license fee and perhaps a security deposit equal to one month’s payment. Buying a car, on the other hand, will generally require 10-20% of the vehicle’s price as a down payment.
INSURANCE:
It’s less expensive to insure a vehicle that’s being purchased, as insurance companies require higher minimums on leased cars.
WARRANTY:
If the lease term is 36 months, and the mileage limits are adhered to, the vehicle will always be under warranty– no unexpected repair bills. On a purchase, once the warranty is up, repair bills are the responsibility of the owner.
MILEAGE:
Buying the vehicle is the better decision if for those drive a lot. Most leases allow just 12,000 miles a year. If circumstances change during a lease and suddenly a leased car is driven significantly more, there will be a large over-mileage penalty after the lease ends.
TRADING OUT OF THE VEHICLE:
While a vehicle loses a lot of equity during the first two years, it’s still easier to trade out of a purchased vehicle. Once the car is 2/3 of the way paid off, it should be close to a break even proposition. A lease is impossible to break without taking a severe financial wallop.
PREPPING A VEHICLE FOR LEASE END/TRADE-IN
If a vehicle is being traded or sold, it’s not necessary to get every little last problem repaired. Not doing so will result in a lower selling price, but won’t cost anywhere near as much as the penalties faced by not fixing a lease d vehicle. Prior to turn-in, the lessee is responsible for even cosmetic problems, as the vehicle must be returned with only “reasonable wear and tear,” Missing knobs and hubcaps need to be replaced, dents and scratches repaired, over-worn tires and chipped windshields need replaced.
So, is leasing a car a good value? If you’re the type of driver that puts a lot of miles on your car, are rather lackadaisical about maintenance and repairs and don’t like the thought of not actually “owning” something, stay away from leasing. Drivers that tend to take good care of a vehicle, drive under 12,000 miles annually and like driving newer cars may be good leasing candidates.
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