Paying cash or taking a car loan is not the only way to get a new car. Leasing was once reserved for corporate customers and luxury car buyers, but now it is found in every segment of the car industry, from college grads leasing subcompacts to families leasing full-size SUVs. As vehicle prices continue to hike, so does the number of people who lease increases. Leasing now accounts for nearly one-third of vehicle sales.
While many people take out a car loan to finance a car, leasing offers another best way to have a new car in your driveway. Leasing can allow buyers to obtain a more expensive vehicle than they might be able to afford. However, nothing is there without its drawbacks. Buying could be the better choice in the long run, depending on your financial situation and how you use your car.
In this article we are going to take a closer look at the pros and cons of leasing and buying in the following sections.
Leasing a Car:
Leasing a car is alike to financing, but there are some key differences. When a person is purchasing a car, the loan value is based on the total cost of the vehicle, minus your down payment and trade-in value. When leasing, however, you are only financing the devaluation that occurs during the lease period plus fees. At the end of the lease period, you just return the car to the dealership.
So, unless the person pays a great amount of money down, or the trade-in had a high value, a monthly lease payment will be lower than a monthly loan payment. With the car lease, the person only pays the difference between the car’s price and what it is expected to be value at the end of the lease, which is known as its remaining value.
Buying a Car:
If you tend to keep your vehicle for a long time, buying is probably a better option for you than leasing. When you buy, you own the car downright when the loan is paid. Throughout the duration of the loan, you gain equity in the car as long as your payments outpace the devaluation of the vehicle.
At the end of the loan, the car belongs to you, and your lender will hand over its title to you. Other than the basic costs of ownership – gas, insurance, repairs, etc. – you will not have to figure any car payments into your budget.
Another advantage is the lack of a mileage restriction. If you live in a rural area or have a significant commute, this can be a huge advantage for buying over leasing.
Pros of Leasing a Car:
- Typically, lesser monthly payments than an auto loan.
- The pleasure of driving a new car every two or three years.
- You are always secured by a warranty.
- You do not have to worry about trading or selling your car.
Cons of Leasing a Vehicle:
- You must have a stable and predictable source of income.
- You can only drive a set number of miles.
- You must steadily and properly maintain your car.
- In most cases, you must purchase gap insurance.
- You will pay more over the long haul to get the advantages from the lease.
Pros of Buying a Vehicle:
- You will have ownership of your car.
- Drive as many miles as you would like to.
- Tailor your vehicle any way you like.
- Build up trade-in or resale value.
- Have the choice of driving your car for years to spread out the cost.
Cons of Buying a Vehicle:
- Higher monthly payments than a lease.
- Sudden post-warranty repair costs.
- Responsible for trading or selling your used car if you want a different one.
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