In this article we will focus on leasing a car versus buying a car. To begin, leases and loans are two methods you can use to finance an automobile. Leasing finances the use of a vehicle; taking out a loan finances the purchase of a vehicle. Both have advantages and disadvantages.
Leasing
When leasing a car, you pay for only a portion of the vehicle's cost. You pay for the part used during the time of the lease. With a lease, you have the option of not making a down payment. Sales tax only applies to monthly payments, and you pay a factor similar to the interest rate on a loan. You may also pay additional fees and a security deposit that you do not pay when you purchase a vehicle. Normally, the first payment is made at the time the contract is signed.
Advantages:
-
Monthly lease payments are typically lower than monthly loan payments.
-
The leasing company, rather than the individual, must bear the risk of the future market value of the vehicle.
Disadvantages:
-
You do not own the vehicle. You must return it at the end of the lease.
-
Up-front costs include first month's payment, a security deposit, a capitalized cost reduction, taxes, registration and other fees.
-
If you end the lease early, you are responsible for paying termination charges.
-
The number of miles you drive are limited by the lease.
-
Most leases will limit wear to the vehicle during the term of the lease. Extra charges will apply for exceeding the limits.
-
At the end of the lease, you will have a new payment to lease another vehicle, or finance the purchase of the vehicle you have just leased.
If you like driving a new car every two or three years, want a lower monthly cost but are willing to pay a little more over the long run, perhaps leasing is a good option for you.
Buying
When buying a car, you pay for the entire cost of the vehicle, and it is yours at the end of the payment period. Usually, you are required to make a down payment, pay sales taxes, an interest rate determined by the loan company, and make monthly payments for the loan. Normally, payments begin a month after you sign a contract.
Advantages:
-
You own the vehicle and get to keep it at the end of the payment period.
-
You may drive as many miles as you want.
-
There are no limits or charges for excessive wear.
-
At the end of the payment term, you have no further loan payments. The vehicle is yours to keep.
Disadvantages:
-
Up front costs include cash price or down payment, taxes, registration and other fees.
-
Monthly loan payments are typically higher than monthly lease payments.
-
If you end the loan early, you may be subject to a buy-out charge.
-
You must take the hit for depreciation on the future value of the vehicle.
If you want to own a vehicle and be able to drive it for as long as you like but are willing to have higher payments and maintenance costs, buying should be a good option for you.
Bottom Line
In conclusion, it is virtually impossible to determine if leasing a car is better than buying a car. Each option has its own advantages and disadvantages. Each person's situation is different. You must look at the financial comparisons and at your own priorities to determine which method better suits your individual situation. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.
