If you’re in the process of deciding whether to buy or lease your next car, we know it’s a major financial decision. Sure, dropping thousands of dollars on a brand new car as an investment might seem like a good idea, but wouldn’t leasing allow you more options? Talk about being an adult, right?
The old truisms about whether to buy or lease a car are out the window, based on the recent changes in auto lease contracts. For decades, the decision was simple. If you only needed a vehicle for a few years, you leased. If you were going to hang onto your ride for a long time, you bought.
Today, you’ll have to consider many more factors as the financial, lifestyle and technology aspects of owning and leasing have changed. Here’s what you need to know if you’re comparing a car lease to a full-on purchase.
What Are Your Needs?
Your first consideration when deciding whether you want to buy or lease is no longer financial. The way you’re going to use your vehicle today, and how you’ll be using it several years from now are the big factors to consider.
For example, will your income be changing in the next two or three years? If you’re just starting out in your career and expect to moving up soon, you’ll be able to afford more vehicle next year or the year after. Do you want to buy a compact car, with few options, that you’ll own for many years because that’s all you can afford right now?
How about family changes? Are you planning on adding children soon?
What about technology? Remember that expensive car your parents or friend bought just a few years ago? Does it have the latest navigation system, smartphone compatibility, backup cameras, crash-prevention and other gadgets today?
You’ll also need to think about mileage. If you’ll be driving your car long distances — like if you’re in sales or have a long-distance relationship — a lease will cost you more. That’s because many leases include mileage limits. You pay more for every mile you drive over your limit.
Oh, and if you plan on a side hustle like driving for Uber or Lyft, a lease may prohibit that, as well as who can drive your car besides you. Take into consideration your driving needs and habits as your first step in making a buy or lease decision.
Front-End And Back-End Costs
If cash and credit are tight right now, you might not be able to pay the upfront costs on a vehicle purchase. Depending on the deal you get, you might need to fork over for a down payment, security deposit, taxes and title fee.
Some leases come with no money due at signing, but you need excellent credit.
When talking to dealers, ask how much you’ll be out of pocket when you drive off the lot in both lease and purchase scenarios.
When you lease, you’ll have to turn in your car and have it inspected. You might be assessed excessive wear fees if you have any damage. If you turn your car in early, you may have an early termination fee, which can tack on another chunk of change.
When your lease is up, you might have the option to extend it or buy the vehicle. The overall cost of buying will be more than if you had purchased it at the beginning, but based on your current financial situation, this might still be a good option for you.
Monthly Payments
For many people, the monthly payment is all-important. Yes, you’ll end up paying more if you stretch your payments out to lower them, but you’ll be able to keep more of your paycheck each month. That means you’ll pay more in interest over the length of your lease contract, though. So, even if a longer lease or purchase contract means you’ll be out of pocket more, low monthly payments might be more important to you.
Vehicle leases traditionally ran for three years, but you can negotiate longer leases today, or even opt for an open-ended lease that gives you more flexibility.
Maintenance
When you lease a vehicle, the dealer takes care of pretty much everything except gas and oil as part of your lease contract. That’s because they want the car returned in the best shape possible. However, when purchasing a vehicle, make sure you know what your warranty covers, and just as importantly, what it doesn’t. If you’re purchasing a used vehicle, you might not get a very good warranty.
It’s important to understand the difference between a factory-certified and dealer-certified warranty. A factory-certified warranty means you get the same parts the original manufacturer uses, and the work must be completed by a factory-approved shop. You can get your car repaired under warranty at any manufacturer-approved shop, which is important if your car breaks down when you’re traveling.
A dealer-certified warranty might mean you’re limited to having your repairs performed at the dealership and they can use after-market parts.
Model Versus Options
The nicer vehicle you lease or buy, the more of your budget you’ll eat up. That means you’ll have less money to work with if you want to add options like heated leather seats, a sunroof or more technology. Buying a lesser model in a vehicle line might not impress your friends as much, but you’ll enjoy your ride more if you get more creature comforts, such as a built-in Wi-Fi hotspot.
Be prepared for salespeople to try and upsell you whether you buy or lease. As you’re getting ready to sign your contract, they’ll ask you if you want things like extra options, rustproofing, nitrogen in your tires, undercoating or an extended warranty. Be prepared to say “no” to all of these if you need to stick to a budget.
Long-Term Value
Once you’ve determined your driving needs and short-term budget considerations, you might want to think about your long-term financial situation.
Remember, the longer you keep a purchased vehicle, the better you’ll come out financially. Once you pay off your vehicle, for example, you’ll drive each year with no monthly payments. You’ll also have equity in your car you can use for a trade-in or as a sale to get some cash.
Repairs aren’t covered on older vehicles, which usually have higher annual operating expenses. However, the thousands you save in payments each year over the course of several or more years usually ends up in your favor.
Just make sure that if you buy a vehicle, you maintain it well for the life of the vehicle. That means keeping the tires filled correctly and getting regular oil and air filter changes.
Decision Time: Should You Buy Or Lease?
Depending on the deals that you can negotiate, leasing for more than a few years is usually a money loser compared to owning a car. That’s in large part because of the fact that you’ll have no equity when you turn in the car and you won’t get to drive “free” for years, as you will after you pay off a purchased vehicle.
However, leasing gives you much more flexibility than owning if you think you’ll want to change your ride in a few years.
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