Lease or Buy - Which Option is Best for You
Congratulations! You’re getting a new car. But should you buy the car or lease it? Simply put, a car lease and an auto loan are just two different methods of auto financing. Choosing the method that’s right for you depends a lot on how you intend to use the car and whether you like to have a new car every two or three years. Let’s explore the benefits of each type of auto financing.
Advantages to Leasing:
• Lower monthly payments. Because with a car lease you are only paying for the portion of the car that you will be using –generally two to six years, the amount you pay each month can be as much as 40 to 60% less than with traditional auto financing. This is even true when compared to 0% financing. Stated differently, for the same amount you would pay monthly for an auto loan, you can drive a bigger, more expensive car by leasing.
• Lower initial outlay. Most car leases require little or no down payment, depending on your credit score. An auto loan, generally, requires a substantial trade-in or down payment. This can be a big consideration when choosing auto financing.
• Lower tax bite. In most U.S. states and in Canada, when leasing, you only pay sales taxes on the portion of the car that you lease, not the whole thing. This sales tax is added to each of your payments instead of being paid all at once as it is with an auto loan.
• No used car hassles. When you lease, you simply return the car when the car lease is finished. No worries about selling your car or getting a good trade-in price. You can just walk away from the car when you’re done with it.
• More car, more often. The advantages to leasing are optimized when you lease a new car every three to four years. If you enjoy having a new model car every few years, leasing can be a cost effective way to do this.
Advantages to Buying a Car
• Eventually your car will be paid off. When buying a car with an auto loan, eventually the payments will end and the car will be yours. This is a good time to save what you were spending on the car for a down payment on a new car. With a car lease, you will always have monthly payments.
• You’re not penalized for mileage. A car lease limits the number of miles you can drive the car each year without incurring any extra charges. Usually this number is between 10,000 and 15,000 miles per year. Extra miles can sometimes be “bought” at the beginning of the lease, but if you turn in your leased car with extra mileage, you will pay a significant penalty. If you will be driving a lot more than 15,000 miles annually, it will probably be to your advantage to buy a car.
• Easier for those with poor credit. Because a car lease requires a smaller down payment and lower monthly payments, you must generally have a higher credit rating than you do to qualify for an auto loan. Late payments and a high debt load may cause you to pay a higher interest rate or even be refused.
• You can make the car your own. If you like to customize your car, paint it a different color, or add special equipment, you are better suited to buying a car. With a car lease, the car doesn’t belong to you; you’re just paying for the use of it. With a car lease, if you make any substantial changes to the car, you will, most likely, be charged to undo the changes at the end of the lease.
Let your car dealer help you choose the auto financing that’s best suited to your driving needs. A good dealer sells more cars in a week than the average consumer buys in a lifetime. Take advantage of his experience and expertise to make the wisest financing decision for you. Be encouraged, whether you choose a car lease or traditional auto financing, there’s a new car waiting for you.