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Shopping -Leasing vs. Buying.
order to decide whether to buy or lease a vehicle, you must
understand the difference. If youíre looking to build financial
equity, buying might be the best way to go. Of course, that means
coming up with a large sum of money, especially when you consider
the ever-rising costs of car and trucks. Leasing is a way to get
into a vehicle you could never otherwise afford.
letís demystify leasing. When you lease a vehicle, you are NOT
renting it. You are arranging for the vehicle to be sold to a
leasing company, which is often a division of the manufacturer. Then
the leasing company allows you to use their vehicle for a monthly
fee over a determined period of time, usually around two to four
years. One of the best features of leasing is that when the terms of
your lease are up, you then have the option to either return the car
to the dealer or BUY THE CAR for a prearranged lump sum. This sum is
called the ďresidual value.Ē
is complicated is the method employed that determines the amount of
your monthly payments. When you lease a car, you are paying for the
carís depreciation over the term of the contract, plus the
interest, taxes, and fees. However, just like buying a car, the
price of leasing is open to negotiation. It may be cut automatically
with a larger down payment. You can also negotiate the upfront costs
such as the acquisition fee and security deposit to get a better
are some definite advantages to leasing rather than buying. Since
you are only paying for the depreciation of the car and not the full
value, your monthly payments are much lower than if you were to buy.
This translates to acquiring the same car but at payments around
30%-60% lower than those of loan payments.
advantage is that when your lease is up, assuming your car is in
good condition, you will be able to stroll into the dealer, hand
over the keys, sign a new lease, and drive off with a brand new car.
You donít have the headaches of selling
a car you purchased or haggling with a used car dealer over its
However, there are a number of disadvantages to leasing.
Leasing doesnít give you equity, as buying a car would. With
leasing, you will pay a large penalty ó as much as six months
payments ó if you want to cancel your lease before the full term
is up. You may pay more money by leasing a car due to extra mileage.
A leasing company typically offers 12,000 to 15,000 miles per year.
Most leasing companies will charge an extra twelve to fifteen cents
per mile above that limit. You can arrange to buy more miles at a
reduced rate (usually around ten cents per mile) when you negotiate
your lease. Also, youíll have to pay for any damage to the car
beyond normal wear when you return it. Finally, there is the matter
of insurance. If you have an accident or the car is stolen, your
insurance will only reimburse you for the carís market value ó
which might not cover what you owe on the lease. You can, however,
buy what is called ďgap coverageĒ to protect against the
possibility of owing more money than your insurance will pay. Some
leases will include it automatically.
So how do you decide whether you should buy or lease?
There are some questions you can ask yourself that will make your
you need your money?
If you do, then it makes more sense to lease because you will
usually put down less money than if you buy. Some dealers will even
waive a down payment. If you buy a car and finance it, you may be
putting down 10% of the purchase price as well as sales tax. You will
be building up equity, but you may be incurring problems with your
day-to-day cash needs.
often do you want a new car? If you are one of those people whose favorite weekend activity is to wax
your new car to a blinding shine, then leasing is for you. However,
if you foresee owning the same car for seven years or more, youíll
save significant money buy buying. When you lease, you give up your
car just when depreciation slows, and, under long-term financing,
equity begins to build. Donít lease if you like to buy a new car
every year. Buying allows you to purchase a new car impulsively
(like, for instance, when you suddenly find yourself the chief
beneficiary of your great auntís multi-million dollar estate).
Buying also allows you to put off a purchase if your income suddenly
much do you drive?
Leasing is ideal if you normally drive around 15,000 miles per year
and keep your car maintained. If, however, you drive significantly
fewer miles per year, you may be paying for depreciation you are not
causing. In that case, buying might be the better option.
you use your car for business purposes? If your car costs are a business deduction, you will do
substantially better by leasing. The interest paid on car loans is
NOT deductible. When you lease, you can deduct the depreciation as
well as the financing costs. However, the IRS limits depreciation
deductions on certain luxury cars.
you worry about your carís resale value? If you regularly drive a car full of kids, have several
eighty-pound bloodhounds (notorious for drooling), or fill the
backseat every weekend with lumber, lawn equipment and tools, you
will probably inflict some damage on the carís interior. If you
lease, you will have to pay for this damage when you turn in your
car. If you keep your car in immaculate condition, you might want to
consider buying ó you can build up equity and take advantage of
its mint condition and any improvements you may have made when you
decide to sell it. Do keep in mind that leasing allows you to lock
in a resale value, which will provide you with a certain amount of
settled is your life?
If there is the possibility of a move, a new job, or any other
life-changing event, buying is a much better choice. When you turn
in a leased car early, you are typically liable for all the
remaining payments minus the amount for depreciation that hasnít
Finally, how much
do you trust the company you are leasing from? When you buy a
car, you donít have to worry about the bank
ó just about owing a lot of money to that bank! Leasing
means you are entering into a complex financial arrangement with a
company. Try to lease from a company with a strong interest in
repeat business, and check the terms of your lease thoroughly,
particularly for gap coverage which protects you if your car is lost
or stolen. Make sure you have a purchase option at a fixed price.
DONíT LEASE FROM COMPANIES THAT DONíT OFFER THESE OPTIONS.
This may seem like a lot to take it, but acquiring a new
car is one of lifeís major purchases. Give it the time and
research it deserves, and save yourself a lot of trouble in the
to Preserve your Car's Resale Value
-What are the most important items to consider in order to
maintain your resale value?
Well Do You Know the Warranty on Your Car?
-Dig that warranty out of the glovebox and check on these
Car Sales Scams: The New Car Buying Process
-learn about negotiating
and other important tips.
Lemons Wanted- Used Car Buying Tips
great used auto without suffering through a lemon.
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