While a new car every three years is an attractive proposition, it may not make much financial sense. Depending on the car you want, your financial situation, and the terms of the lease contract, it may be a better decision to buy.
Why a Lease Can Be Less Expensive
A lease usually means lower monthly payments. This is because a lease takes into consideration the value of the car at the end of the lease. While a previously leased car is always going to be less than the value of a new car, a leased vehicle can still retain a lot of value. The dealership then can sell or lease the car to someone else. In addition to lower monthly payment, a lease can also mean lower upfront costs — no down payment or sales tax.
However, when considering whether to buy or lease, you need to take a deeper look at the numbers. There are many hidden costs associated with car leases and the dealership may not take the time to explain them all to you.
Pros and Cons of a Lease
Some of the pros of leasing are that you get a new car with all of the latest safety features and technology to drive and enjoy. Dealerships tend to have lease deals to get people to come in and take a look. A three-year lease is typical and then you return the leased vehicle and have the opportunity to start over with a new vehicle.
Some of the cons of leasing may not be easy to see. Signing a lease may come with preparation fees, while the end of the lease term may mean money due for excessive wear of the vehicle, excessive mileage, and termination fees. The maintenance costs of the vehicle may or may not be covered while the car is in your possession. And to make matters more complicated, even without these fees, you may be actually paying more in the long run when you lease.
Pros and Cons of Buying a Car
If you would rather buy a car the biggest upside is that you will own the vehicle at the end of your car payments instead of having to give it back. You are also not limited on the number of miles you put on the car so you can take road trips whenever you want and customize the vehicle however you want.
If you find a car you want to buy you will need some sort of down payment money or car to trade in at the beginning. If you cannot afford the purchase price you will need to qualify for a car loan with a lender. The loan can be through a bank or credit union, or in rarer cases through a personal loan. The lender will look at your credit score to figure out what interest rate to give you on the auto loan so you may want to check your credit ahead of time on Experian or another credit monitoring site.
In the end, your loan payments may be higher than lease payments but you have something to show for it in the end. If you need a different vehicle, you can always sell it as a used car or eventually use it as a trade-in.
Whether you decide to buy or lease, it's important to really read your contract thoroughly and to understand it completely. Take it home and look up terms and information or ask friends and family with more experience. Knowledge will allow you to negotiate better terms.
Also, remember that most states require you to have proof of car insurance for any vehicle you lease or buy.
Related Resources:
- Buying a Car (FindLaw's Learn About the Law)
- 10 Tips for Buying a New Car (FindLaw's Learn About the Law)
- Understanding Auto Financing: Options for Funding a Car Purchase (FindLaw's Learn About the Law)
