Is auto leasing better than buying your next car?
When it’s time for you to get a new car, you might want to consider whether you should buy it or lease it. Both choices have their pros and cons. Knowing the facts can help you make a better decision.
Benefits of buying a car
Buying a car offers several advantages over leasing that could make it a better deal for you, especially if you want to keep it longer. Although the monthly payments are higher than if you were leasing, you will own the car when you are done paying for it. At this point, you’re free to do whatever you want with it. The upside is that there’s an end to your payments, at least until you buy your next car, which could be years later.
As a car owner, you can also drive the car as much as you want without worrying about mileage limitations. You also won’t have to worry about any issues while the manufacturer’s warranty is still in effect, but after that the cost of repairs will be your responsibility.
A car you own accumulates equity as you make payments, just like a house. It allows you to trade it in later for the value of the car at that time, giving you a discount on your next vehicle.
The downside of buying a car
Buying a car often results in a six to eight year loan. Although a long-term loan pays you less (the longer a loan, the shorter your payments), there may be a problem if you have to sell it or if it gets destroyed. This can mean that you end up paying for the vehicle years after you no longer have it, and you also end up paying for another car.
When considering the question of buying versus leasing a car, Forbes concludes that it is a better financial option to buy– but it depends on your unique needs. It’s best if you plan to keep the car for years because your payments come to an end and you end up owning the car.
When buying, consider how quickly the car depreciates. Investopedia says that new cars typically lose 15-25% of their value in the first five years. You can save money if you buy one with a few miles – a certified used vehicle – and avoid the significant depreciation of a new car when you drive it off the lot.
Advantages of renting a car
If you don’t mind ongoing payments, leasing a car would be a better option, as long as the dealer performs the maintenance for free. Even if you will never own the car, you can choose the duration of your lease: 24, 36, 48 or 60 months. This can be a big plus if you’re looking to use a short-term vehicle.
Payments for renting a car are cheaper than they would be for the same model. This can make leasing quite attractive, as it will allow you to drive newer car models for less than if you bought the car, and continue to do so.
Rental contracts generally include maintenance and any repairs. The car is still under the manufacturer’s warranty, which helps to ensure that any issues are resolved at no cost to you. You will be responsible for obtaining insurance for this.
At the end of the lease, you can select another new or newer car and repeat the process, if you wish. You may also have the option of buying the car at the end of the lease. If this option is available, the price must be specified in the rental document, if purchase is an available option.
Some car dealerships may offer no-cash leasing, which would make it cheaper than buying the vehicle. Forbes says that some rental contracts will require you to pay a deposit, which will reduce your monthly bill. You should probably avoid large down payments, Serious said, because if the car is stolen or destroyed soon after you get it, you won’t get your money back. In lieu of a down payment, some dealerships may charge an “acquisition fee”, but the cost will be about the same. You must also pay sales tax on the depreciated value of the car.
Disadvantages of renting a car
At the end of the lease, you will return the car to the dealership. They will examine it carefully for damage. If the wear and tear is deemed excessive, you will pay a charge for it and any damage.
If you decide you no longer need or want the car and decide to return it, you may have to pay a considerable fee. The amount may be equal to what you would have paid if you had kept the car for the full term.
Driving a rented car over the mileage limits means paying for it at a specified cost, which is usually a lot per mile over the limit. consumer reports says that these fees could range between 10 and 50 cents per mile. Most dealerships limit mileage to 12,000 miles per year, but you can get higher limits, for a price.
How to get your car: buy or lease
Whether you buy or rent your next set of wheels comes down to your preference. If you prefer to drive newer vehicles and don’t mind mileage limits, leasing is your perfect option. If you’re only interested in a short-term lease, this could help you avoid further debt and possibly pay a large sum of money up front.
Getting a lease on a new car can also be easier to get than getting a loan on one. MarketWatch mentions that you probably won’t need as much money for a lease as for a loan. Sales tax is also lower in most states for leasing a car than for buying a car.
Kevin O’Leary, a CNBC “Money Court” judge, says it’s a good idea to rent a car as long as its transmission is warranted. If longer than that, you can expect to add a maintenance fee to your rental fee.
O’Leary also says that when you sell a car, you get back some of the money you spent on it. The value of the car can reduce the cost of your next vehicle. If you rent, you do not recover any costs. If you include the money you get back when you sell your car, you probably spent less on buying the car than on leasing it.
When you start looking for another vehicle, go to more than one dealership and compare prices whether you are buying or leasing one. You can also watch online. Car prices vary widely from dealer to dealer, as do car rental contracts. Deciding whether to lease or buy a car ultimately comes down to your needs and preferences, and having a good credit rating will also help you get a better deal.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.