So, here you are. You’ve done the research and saved up for months; you know exactly which new vehicle you want. There’s only one thing you may have forgotten to consider: Are you going to buy that vehicle, or are you going to lease it? Read on for all you need to know about the lease vs buy debate.
Well, that decision depends on a number of lifestyle and monetary factors. Below, we’ve laid out the benefits and drawbacks of buying and leasing.
Is it better to lease vs buy?
For one, your monthly payments are most likely going to be less than if you bought the vehicle, because you’re paying the difference between the vehicle’s current price and what the dealer thinks its expected value will be at the end of the term.
This expected value is called the vehicle’s ‘residual value,’ and, if you really, really like the vehicle you’ve been leasing, you will be able to buy it for this price when your lease is up.
You’ll be able to put less money down (which is great if you have less money saved up) at signing than you would if you were buying. At signing you usually pay a security deposit, a down payment, the first month’s payment, sales tax and other fees including registration fees.
If you decide you don’t like the vehicle you’ve been leasing as much as you originally thought, that’s fine, too, because most leases only last three to five years. You can begin a new lease on a different model when your term is up!
Speaking of three years, that’s how long most car warranties last. Which means that your vehicle will most likely be covered while you’re leasing it. You will, however, still need to take care of basic maintenance things like oil changes.
When your lease is up, you won’t have to worry about setting the vehicle up for a trade-in or selling it. You can simply turn it in to the dealership and head out the door!
Beware the pitfalls of leasing
If your credit is sub-par, it can be tough to qualify for a lease contract.
Your lease is going to limit you on how many miles you can drive the car before it starts to charge you by the mile. Most leases allow you to drive the vehicle for 12,000 to 15,000 miles per year.
If, for whatever reason, you decide to end your lease term early, you may face hefty termination charges. These penalties may be as costly as if you leased the vehicle for its entire term.
Since you don’t own the vehicle, you can’t make any major alterations to it. Also, if you don’t take proper care of it during the lease term, you may get fined when you eventually turn it in.
You have to either buy the car at the end of the lease term, or trade it in for another. Leasing can be much more expensive than buying if you’re doing it vehicle after vehicle.
Similarly, you’re not building any vehicle equity when you lease a vehicle.
Is it better to buy your car with an auto loan?
Securing an auto loan to purchase a vehicle could be a better choice because the vehicle will be eventually yours when you’ve paid it off. You can then do whatever you want with it; you can modify it–change it, alter it–in whatever ways you want without having to deal with any lease-related fines.
It’s also going to be much more cost effective in the long run! In fact, the longer you own the vehicle, the more you’re going to save.
You can drive it as much as you want, because you own the car.
You can buy a lower-cost car or a used vehicle if you’re worried about monthly payments being too expensive.
If you don’t like it, you can sell or trade it. Money from the sale can be used to pay off your loan.
As you pay the vehicle off, you build equity.
What’s the down side of buying a vehicle?
Buying means that you’re going to not only pay a higher down payment on the vehicle, but you’ll also have higher monthly payments, too. Auto loans can last up to seven years, which means you may be paying a great deal of interest before you pay the vehicle off.
You’re going to have this vehicle well after manufacturer warranties wear off, which means you’ll end up paying for the car’s maintenance out of your own pocket.
If you do decide to trade or sell your vehicle, you’ll be personally responsible for doing the research and making the trade happen–and it can be hard to determine what a vehicle’s resale value will be.
It all depends on your life choices!
Some people simply prefer to drive a new vehicle every few years, while others prefer to have the same sturdy rig for as long as they can.
If you’re still stuck on whether to lease or buy your next vehicle, however, and your budget or credit score is a big concern, don’t hesitate to call us at 608-256-5665 or visit any of our Madison-area branches. We’re more than happy to sit down with you and do what we can to help you keep your best financial foot on the gas pedal.