Buying versus leasing a car
So you have searched and searched and finally found that new car you really think you must have! But with all the ads that abound about new cars the question becomes, "To buy or not to buy?" We are almost constantly bombarded with ads that advertise that we must have that hot new car and can do so with amazingly low monthly payments. It truly has become like the siren call that you must go to your local dealership now! It has become apparent that Americans like to drive new and constantly newer cars. Studies show that the average American trades in his or her car every 3-4 years. Competition between manufacturers has intensified greatly with many offering incentives that were virtually unheard of just a few years ago.
So with the competition being so intense where does that leave the average consumer?
While leasing has grown in popularity there is still no reason to rule out buying a car. Here are a few of the benefits and the drawbacks of buying your car versus leasing-
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Buying-
You actually own the car when the loan is completed paid off.
If you plan to drive the car more than 12,000 miles per year buying may be the best option.
If you want to keep the car longer than 5 years buying the car outright makes the most sense. This is best if you are sure you can avoid the new car tug at the dealership.
You may be able to negotiate a better interest rate with the lender if you intend to purchase the car rather than lease it.
The fees associated with buying are usually minimal besides the purchase price of the car. Generally the buyer may only have to pay a documentation fee of about $75.
Leasing-
Leasing allows many drivers to drive a nicer car than they may otherwise be able to afford.
Leasing allows the driver to acquire a new car every 4-5 years. Terms of leasing tend to be shorter than a buy loan. This allows the driver to move on to another car much faster.
Leasing tends to offer a lower payment making owning the car much more affordable.
Leasing allows you to pay the sales tax over the life of the lease rather than all at once as is required when buying a car in most states.
Leasing generally provides for insurance against unexpected loss this is usually included within the lease. This type of insurance is referred to as "gap insurance".
If you plan to drive the car more than 12,000 miles a year you may be charged a miles fee for every mile you go over.
It may be more difficult and costly to register the car. This is become the leasing company must be placed on the registration with you as co-owner. In addition certain higher insurance limits may be required by the leasing company costing you more in insurance premiums.
There are usually certain fees associated with leasing. A "zero money down" lease is a misnomer for example: it will usually cost at least $1,000 to drive away in your leased vehicle: first month's payment, $259; security deposit, $284 (monthly payment plus $25); "bank fee," $450-$500 etc.
Keep in mind though that a car is a depreciating asset so it loses value over time with some makes and models losing value faster than others. So do your homework carefully, look closely at your options and then make the decision that is right for you. Whether you lease or buy, it is always better, economically speaking, to choose a car that retains its value over time. If you need to trade it in early, you are more likely to get back at least what you owe.
