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If you’re tired of your old car and thinking it may be time to switch things up and get a new car, have you thought about if you’re going to lease or buy your car? There are a number of pros and cons for both. How are you to know which is right for you?
Just like anything you’re researching, you should always engage your best resources. Believe or not, asking your friends and family for their advice is a great resource. If your family is anything like mine, overly opinionated, then you’ll get a good range of comments on the pros and cons of both.
While your family and friends want what is best for you, everyone’s story is unique to their situation, which may not be like yours.
It’s important that you remember to do your own research. Only then will you be able to gauge how much of their story is exaggerated and how much is true. Plus once you evaluate your situation, you’ll be in a better position to determine what’s best for you.
To get you started, let’s look at what the difference between buying and leasing really is.
Buying a Car
When you go to buy a car online, you understand that unless you are buying the car outright, you will be financing either through the dealership or through another money lender. Either way, you’ll be making payments on the full cost of the car.
Even though you are paying for it, the understanding you have with the dealership is that the car is yours unless you are unable to make payments which will then lead to repossession. However, given this understanding, you are free to make changes, add aftermarket accessories, treat the car like it’s yours.
Because you are making payments on the full amount, you are likely to have large monthly payments. You can negotiate. You can add security with extra warranties. The big plus with buying a car is that once your payments are done, you own the car. You have earned the equity.
Choosing to lease a car means that you are never owning that car. The dealership is loaning you the car for a couple years while you make payments on the residual value. Residual value is its current market value minus its estimated worth by the end of the lease.
Because this is a smaller number than the one mentioned above, your monthly payments will be lower, even if your lease is as long as the loan on buying a car.
The main difference here is that once your lease is up, the car goes back to the dealership and you are once again in the same predicament you found yourself in years earlier. You may have found that you enjoyed leasing a car and wish to lease another. Of course, that option always exists and most dealerships prefer to keep this cycle going.
As mentioned above, some people have definite opinions about buying or leasing and exactly what you should do, but this really is a decision that one has to make based on their own personal situation and what would be best for them. Let’s dissect the pros and cons of both buying and leasing to see what would really work.
Pro: The car is understandably yours. You can make adjustments. Want to add tinted windows and a spoiler? You can, even though it’s no longer 1998. Want different tires or need to need to fancy up your Jeep? Even though you’re financing, the vehicle yours.
It’s equity. And when you’re done making your payments, you officially own the car which is a pretty good feeling.
Con: At that point, it’ll be about four years old and that means the technology is already outdated. Yeah, you don’t have a car payment, but you’ll be with this car that will only be getting more outdated as the years pass. You know what, though? Some people like their take deck.
Pro: Warranties are great. 5 year, 100,000 miles?! That stretches beyond your payments.
Con: New cars are made so well and under such strict regulations that they’re not usually going to have something major go wrong before 5 years or 6 years.
Pro: You can sell or trade in your car whenever you want. You own it. The choice is yours. Any money you make can go towards paying off the rest of the loan.
Con: As the owner, any selling or trading-in falls on you. If you find this is not the car for you, it’s your responsibility to handle all further dealings.
Pro: Most places allow a co-signer on a lease. Should you know this is your best bet and you have an available friend or family member who’s really willing to help you, you should be incredibly grateful and try your best to not mess with their credit. In fact, take them out to dinner.
They deserve it for all they’re doing for you.
Con: Good credit is required. Leasing means that dealerships are betting that you’re responsible enough drive their car without owning it. They’re letting you borrow it. You may remember the first time your dad let you borrow his car, under the threat of your life?
So, it’s not that cut throat, but one thing they do require is that you have good credit.
This can definitely be a hindrance for some people.
Pro: Of course, as stated above, leasing a car means having a smaller monthly payment.
"Lease payments are typically less costly than buying a car. Your monthly payments will be cheaper, says Scott Michalek, a senior financial adviser with Wescott Financial Advisory Group in Philadelphia,
Con: “but when you walk away at the end of the lease, you won't have anything to show for it." Meaning, you won’t own the car. You will have earned no equity, no trade-in value. If you made your payments on time, you will improve credit score.
Pro: You don’t own the car. Likewise, the car doesn’t own you either. This is not your forever car. If you fear commitment, a lease is a good move for you.
Con: You don’t own the car. Because you’re borrowing it, you have to pay for any damage done. Dealerships do account for normal wear and tear, which is going to happen over years of driving, but you don’t have the fear of your objects owning you. Once the lease is up, you get to walk away from it.
Pro: It’s brand spanking new. You get the advantage of driving a brand new car with all the latest technology, safety features and trims in a cost that you can afford. Driving a top trim is more affordable when you lease than when you buy. It’s luxury you can afford.
Con: There’s mileage you can’t exceed. Because the dealership owns it, they can put any speculations they want on it. Mileage is the only big one. If your job has you commuting too far, if you are always visiting friends and you can’t ever be in one place, then you stand a chance at going over your given mileage.
If this occurs when it’s time to turn in your leased car, there is a fee you must pay for the mileage you do exceed.
Pro: Most dealerships are usually willing to waive that fee if you choose to enter into another lease with them.
Only you are going to be able to make the decision about which option is best for you. Don’t let other’s completely persuade you one way or another. Let the research and your own life make that call for you.