- 1 pros and cons of leasing or buying a car
- 2 Buying vs. Leasing: Pros and Cons Jun 28, 2016 by Cedric (Driver Weekly)
- 3 The pros and cons of leasing a car
- 4 Pros and Cons to Buying and Leasing a Car
- 5 Buying vs. Leasing A Car: The Pros and Cons
pros and cons of leasing or buying a car
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Leasing a car could be an option for you instead of buying, but is leasing a car right for you and your lifestyle? Here are the pros and cons of leasing a car..
Buying vs. Leasing: Pros and Cons Jun 28, 2016 by Cedric (Driver Weekly)
When you decide that it is time to start driving a new model, you are making an important decision on more than what type of car to drive. One of the biggest decisions is whether you should lease or buy your next vehicle. Each option has its pros and cons, and there is no right decision; leasing is best for some drivers while others would be better off buying. Learn about the advantages and disadvantages of each before you decide which route is best for you.
The biggest benefit of buying your next car is that you will own it. This means that you can make any modifications you want and don’t have to worry about the necessary wear or tear - you can drive your vehicle however you want. Additionally, you will eventually complete your monthly payments for your car and will be free and clear. Finally, buying a car also lets you get a new one when you want by selling the previous vehicle, although selling a used vehicle can also be a hassle.
The most significant disadvantage to buying a car is depreciation. Just the act of driving the vehicle off the lot lowers its price significantly, and the largest depreciation takes place within the first year. In other words, the car you own will be losing value rapidly over time. Additionally, if you own the car, you are responsible for maintenance and damage. That means you will pay out-of-pocket for all regular maintenance and repairs that are not covered by your warranty.
Leasing has a strong financial advantage over buying since it typically requires a lower down payment and lower monthly payments. That is because instead of paying for the entire value, you are just paying for the cost of depreciation. You also don’t have to deal with the loss in value of the vehicle, as you do not own it outright. Leasing is also great for those who frequently like to change their vehicles, as a lease term typically lasts several years. Therefore, you will always have the latest model with the best technology and features on the road. While this is possible with a car you own, it requires additional expenses, unlike leasing a new vehicle and waiting for the lease to expire.
Although monthly payments when leasing a vehicle are lower, you will be paying them for as long as you drive the car. Buying means the payments stop once you have paid off your vehicle, but this never happens when you’re on a lease. Additionally, many companies will charge extra fees for those who use their leased cars more frequently. Therefore, if you put an excessive number of miles on the vehicle or have children or pets, you may find yourself with high fees at the end of the lease contract.
Buyers that need a dedicated workhorse for their job or family may prefer buying rather than leasing, avoiding any additional fees or charges for heavy usage. On the other hand, if you prefer newer vehicle and know that you will not be driving the vehicle longer or more frequently than average, you might prefer a lease. Carefully evaluate the upfront and ongoing costs of any given contract as well as what you expect from your vehicle. Making the right decision can save you time and money in the future.
The pros and cons of leasing a car
Mark Huffman has been a consumer news reporter for ConsumerAffairs since 2004. He covers real estate, gas prices and the economy and has reported extensively on negative-option sales. He was previously an Associated Press reporter and editor in Washington, D.C., a correspondent for Westwoood One Radio Networks and Marketwatch. Read Full Bio→
If you've paid attention to car commercials on television lately, you may have noticed there are some jaw-dropping deals on auto leases – or so it seems. Some sharp entry-level sedans carry monthly payments as low as $150.
But the first rule of shopping for any kind of car, whether for purchase or for lease, is to forget the monthly payment and instead, focus on the purchase price, interest rate and the length of time you'll be making payments.
“Unfortunately, I think most people define affordability by how much the monthly payment is,” said Mike Sante, managing editor of Interest.com. A lot of people think, if the check doesn't bounce I must be able to afford it.”
Sante and his team conducted a study in February and concluded that most consumers can't afford most new cars. And that's part of the seductive appeal of an auto lease – it looks much cheaper than buying. The monthly payment is lower and so is the down payment.
That's because, with a lease, you aren't paying for the entire car, just the part that you're using. In a typical lease, you surrender the car at the end of three years. The car still has a lot of its value left, which the lessor recoups when they sell the vehicle on the used-car market. You are only paying for the first three years worth of value.
But are you overpaying? That's the question you must answer before deciding whether leasing a vehicle is right for you. Often, it depends on the kind of vehicle and the price.
Let's look at two different vehicles and approach them from both a lease and sale perspective.
Before going any farther, let's get business leasing out of the way. Many businesses, both large and small, lease their vehicles because they can deduct the entire lease payment from their taxes. We're ignoring that in this discussion, which is intended striclty for consumers.
We'll start with an expensive car, like the Audi S5 coupe.
To lease the vehicle, the dealer determines how much depreciation should occur from the $50,900 MSRP when it's in the showroom until you return it three years later. The dealer applies an interest rate and amortization schedule, adds in some other fees and charges, and comes up with a monthly payment.
To purchase the same car a consumer would have to put down as much as $10,000, with the monthly payment reflecting the full value of the vehicle.
For that reason the buyer would likely be making payments longer than three years. Some payment plans for a car in this price range could easily extend six or seven years.
The Chevrolet Cruz, with an MSRP of $17,130, would most likely carry a much smaller lease payment but would lose a greater percentage of its value than the Acura.
To purchase the Cruz you would need a down payment of no more than $2,500 and the montly payment, while higher than a lease payment, might only be for three or four years. At the end of that time you would own the vehicle. So it would seem a lease probably makes more sense for an expensive car and less sense for an inexpensive one.
But many personal finance experts say it depends on a lot of factors. Do you change cars every three or four years or do you drive one until the doors fall off? If it's the latter then buying is a better deal. But if you change your wheels more often, then leasing starts to look like a better deal.
Just like buying, it only becomes a good deal if you negotiate one. Many consumers don't realize that a dealer will negotiate a lease, just as they would a sale. To dealers, there's very little difference. The consumer should view it the same way, and that means not paying so much attention to the monthly lease payment, which is what the car commercials flash on the screen.
Instead, there are three things you should pay attention to. The first is the “capitalized cost.” This is what you and the dealer agree that the vehicle is worth right now. Just as if you were buying the vehicle, you want to negotiate the number as low as possible.
The second is the “money factor.” This translates into the cost of financing. The entity leasing the vehicle has to purchase it before they can lease it to you. This is the cost of the money they use.
The third factor is “residual value.” This is what the parties agree will be the value of the vehicle at the end of the lease. A high residual value will result in lower payments but make it more expensive for you to purchase the vehicle at the end of the lease. If you want to trade the vehicle before the lease is up, it reduces a lot of your flexibility.
Yes, it is possible to trade in your leased vehicle before the term is up without taking a bath. Websites like SwapALease.com and LeaseTrader.com, where consumers can find other consumers to take their car and take over the lease payments, have in recent years, added more flexibility to leasing.
In the end, the problems many consumers face with an auto lease are caused by not completely understanding how they work. Leases are different from a sale but not that much different. By focusing on the bottom line – what the vehicle actually costs – the consumer has a better chance at a satisfying lease deal.
That means doing your homework on the car before ever setting foot in the dealership, just as you would do if you planned to purchase it. Checking automotive sites like Edmunds and Kelly Blue Book will help you arrive at that all-important number – what the car should cost.
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How it works: Think of leasing as renting a car. You make a monthly payment to drive a brand-new model over a two- to three-year period.
Is it for me?: "There is often no down payment required, or it's very low," says Rik Paul, automotive editor at Consumer Reports. Most lease agreements grant you a limited number of miles, so "the ideal lease customer drives under 15,000 miles a year and keeps her car in good shape," says Paul.
Advantages: With a lease, you'll pay less per month than you would repaying a car loan. The first few years of a vehicle's life rarely require any serious repairs, so maintenance costs will be relatively low. Plus, you won't have to deal with the hassle of eventually selling or trading in the vehicle for a newer model.
Disadvantages: It can be frustrating to pay for something you'll never own. And if you need to terminate a lease before it expires, the fees can be hefty. "Try to anticipate any major lifestyle change that could happen within the time frame of the lease," says Paul. "Moving to a new home or a longer commute to a new job can easily offset the leasing benefits."
How it works: While you can always pay the full amount of the price that you negotiated with the dealer up front, most young families will need to take out a loan and make monthly payments until the debt is paid off.
Is it for me?: If you're able to put down at least 10 percent of the purchase price and plan to keep your car for more than two or three years, your best bet is to buy. Again, consider your driving habits-clocking more than 12,000 to 15,000 miles per year makes you a better candidate for buying.
Advantages: Without fear of wear-and-tear penalties, you won't have to worry if your tot turns the backseat into a demolition derby. "Buying also gives you the most bang for your buck," says Paul. "Keep your loan repayment schedule short, no more than five years, and once it's paid off, you'll have full equity."
Disadvantages: On the flip side, the older your car gets, the more you can expect to incur repair and maintenance costs. And once the manufacturer's warranty expires, typically after three years or 36,000 miles, you're on your own. Cars depreciate in value over time, lowering the potential resale price when you're ready to upgrade to a newer model.
Fave Family Cars
Consumer Reports recommends that you look for a vehicle with a roomy interior and plenty of cargo space. Take your baby's car seat for the test drive to make sure it fits without a struggle. Here are Consumer Reports's top-rated models for their safety and kid-friendliness:
Honda Accord, Toyota Avalon
Stylish Crossover (part van, part wagon).
Buying vs. Leasing A Car: The Pros and Cons
When you’re shopping for a new car, a common question you’ll ask is “should I buy or lease?” In the 90s, the answer was more straightforward for Gen-Xers than it is for us millennials today. The rise of technology, the gig economy and other disruptors have altered landscape for millennials. Before you part with your hard-earned savings, take a look at the pros and cons of buying and leasing in today’s world to help you make an informed decision.
Buying and leasing a car are similar in many ways, but there are some key differences. The most important one is a car loan is based on the full price of a new car, while a lease is based on a percentage of the car’s price, which is the difference between the car’s full price and what it’s expected to be worth at the end of the lease. As a result, leasing has become increasingly popular with millennials as it affords them the ability to drive a luxury car with the latest tech they couldn’t afford otherwise. Leasing also prevents them from investing in a depreciating asset.
When you buy, you own the car when the loan is paid off. As you make payments, you gain equity in the vehicle. If you plan on keeping your vehicle as long as possible, buying may be the right choice for you. You can also customize your car as you wish, unlike a leased vehicle, which must be returned in its original condition at the end of the lease.
In a nutshell, leasing allows you to get more car for less money in the short term. However, in the long-term, leasing will eventually be more expensive because you will always have a car payment and never own a vehicle. As with any major purchase, do plenty of research to determine what works best for you before you make your decision.