Image via Flickr by DVS1MN
If you're ready to choose one of this year's best new cars, you know the fun part is picking the color, the selecting your bells and whistles, and deciding whether you're going to call it Candy or Max. But there is a more serious part to it. You also have to decide how you're going pay for it. You have to decide whether you are going to lease or buy.
Here are some pros and cons of leasing vs. buying to help you figure out what's right for you, your lifestyle, and your budget.
The Difference Between Leasing And Buying
A car lease allows you to drive a new car without a hefty down payment or taking out a loan. You put down a small deposit that is usually far less than the amount of money you need to make a down payment when buying a car. Then you make payments every month until the lease is up and you give the car back.
When you're buying a car, you're responsible for a down payment. Experts say down payments can be up to 20 percent of the price of the car. As with leasing, you're responsible for monthly payments, but when you're done with the payments, you own the car.
Benefits of Leasing A Car
More Americans are leasing cars, according to recent reports, which is a turnaround from dismal numbers during the Great Recession. There are several benefits about leasing a new car versus buying. For example:
• If you don't typically put a lot of miles on your car, leasing is a good option. Car dealerships usually have annual limits of 10,000 to 15,000 miles for the lessee. This stipulation would appeal to someone who doesn't often take long road trips or the amount of driving they're doing around town is relatively small.
• If you find yourself shopping for a new car every two or three years, leasing is a good way to always have a new car. You would be in the market to lease again every few years instead of waiting out the typical 60 months it takes to finish paying off a car. Also, even if you can afford to buy a new car every few years, you would end up with a collection of cars at your home.
• You can get a car that you may not be able to afford otherwise. Paying a small deposit to lease a new luxury car is easier than trying to come up with cash to finance one.
• Some leases include maintenance on the car as opposed to having to pay for those costs out-of-pocket.
Benefits of Buying A Car
Overall, more Americans still buy instead of lease their cars. Here are some benefits of buying.
• You own your car when you're done paying your car note. A lessee will always have a car payment.
• Long-term, buying a car over leasing makes more sense financially. People who buy their cars may end up paying less than people who lease, even when out-of-pocket maintenance is included. This is because leasing several cars over the years will likely be more than buying a new or used car.
• You can drive as much as you would like without penalties.
• Insurance rates are more stable when you are buying your car versus leasing it. If you are leasing an expensive car that you typically couldn't afford, your insurance rates will be higher. When you're buying a car, you are usually in your price range and so are your insurance payments.
• You have equity in your car if you want to sell it or trade it in when you are done paying the note.
The Bottom Line
Deciding to lease a car over buying will largely depend on how much cash you have on hand, your driving habits, and what you intend to do with the car. Research should be the cornerstone of any choice you make. Consider the type of car you are interested, the cost, and how much you want to spend long-term.