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Buy or Lease? What You Need to Know Before Getting Your Next Car

by Bruce Haring

To buy or not to buy?  If there’s a new car in your future, that’s definitely the question.  The answer is a bit more complicated.  It depends on a wide range of factors ranging from your finances and credit to the type of car you want and how you plan to use it.

There is no one “right” answer to that question.  What’s right for you at the moment might be different than the choice you made when you got your last car.  And it might even vary between car-owning members of the same family.  So how do you decide?  Keep an open mind, look at all the pros and cons and then make the choice that works for you — right now.

If you lease…

The pros:

  • Less money down. Leasing often requires little if any down payment, which is great news for those that can afford monthly payments but lack the extra cash upfront.
  • Lower monthly payments. Leased cars typically have lower monthly payments than buying.  This means you can save money each month — or lease a more expensive car than you could afford if you were buying.
  • Upgrade sooner. Most leases are for two or three years so you can always have a new-ish car to drive.  When the lease term is up, you can lease a brand new model of the same car or try out a different car entirely.  And if you loved this car, you also have the option to buy it.

The cons:

  • Those payments don’t make it yours. After two or three years of monthly payments, you don’t own the car.  You’ll need to start over with a new lease on another car or pay (or finance) the buyout price to make this one yours.
  • Limited mileage. There’s a limit to the number of miles you can drive annually with a leased car.  It’s usually 10,000 or 12,000.  If you exceed that amount, you’ll pay 15 to 25 cents for every mile that you’re over.  This isn’t a problem for most people, but if you do a lot of driving for your job or travel far from home, the miles could add up.
  • Credit concerns. Poor credit could result in higher monthly payments.  On the other hand, prompt payments over the course of a lease could help your future credit.
  • Expensive to buy. Buying the car at the end of your lease will be more expensive than financing a car right from the start.
  • You’ll always have car payments. If you continue to lease another car every time your rental term is up, you’ll never own your car outright.  You’ll always have payments.

And if you’re thinking about buying…

The pros:

  • It’s yours. Whether you buy a car outright or finance it, once the bank’s paid off, you’ll own the car.  No more payments.  You can then drive it for “free” for as long as you want, as far as you want, then sell it or trade it in on a new car.
  • Better value. If you’ re thinking you may want to own the car, it’s cheaper to buy it right from the outset than to lease it and then purchase the vehicle at lease end.
  • Do what you want. Want a sunroof?  Go for it.  Giant tires?  A better sound system?   No problem.  When you own a car, it’s yours to change or upgrade however you want.

The cons:

  • More money upfront. Most dealer financing or banks require a down payment of between 10% and 20% of the car’s value.
  • Higher payments. Even with the down payment, monthly car payments are typically higher than leasing costsin order to pay off the total price of the vehicle.
  • Your car, your responsibility. When you lease a car, you’ll probably turn it back in before you face any major maintenance issues.  The longer you own a car, the more things that could go wrong!

As you read through the pros and cons, it may seem as though one or the other is the better deal.   But remember, what’s right for someone else might not be right for you.  And what was best for you three years ago might not be the way to go this time around.

Consider the state of your finances. How’s your credit?  Do you have money saved for a down payment?  How much can you comfortably afford each month?  Do you want to own it?  Or do you want to drive a more expensive car for a lower price?  Do you travel a lot for business or pleasure?  Do you want a car to pass down to a teen driver?

And remember if you buy a car it doesn’t have to be a new one.  There are a lot of great pre-owned options out there as well.  Happy driving.

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