Should You Lease A Car Or Buy A Car
Leasing allows a person to get a new car every few years. It can keep their payments relatively stable when leasing the same make and model of car over various leases. Leasing also frees the lessee from having to dispose of the car at the end of the lease term.
should you lease a car or buy a car
Determining whether you should lease or buy a car depends on a careful assessment of your finances and driving habits. Think about how much you can comfortably afford to pay upfront each month and consider how many miles you spend on the road to figure out the most cost-effective way to hit the highway.
Though there are a number of factors to weigh when making your choice, Kevin O'Leary, O'Shares ETFs chairman and judge on CNBC's "Money Court," says the first thing you should consider is how long you think you will have the car. The longer you plan to keep it, the more sense it makes to buy, he says.
"If you're going to keep it long-term or you're a collector of cars, I get it," O'Leary tells CNBC Make It about buying a car outright. "But if you're short-term and every three years you want a new car, lease is the way to go."
O'Leary employs both strategies himself. He owns a vintage Porsche that he says "there's no point" in leasing because he plans on driving it "another decade or 20 more years," but has other cars on 36-month leases.
"The minute [the car] goes off warranty, all of the sudden you have the lease payment and every year you're investing $200 to $500 into maintaining the car," he says. "So I try to tie those two things together."
In addition to O'Leary's advice, shoppers should also consider how much they can afford to spend when deciding whether to lease or buy. Monthly lease payments are typically more affordable than auto loan payments because they don't require you to pay off the vehicle's full purchase price.
You should also consider how much you plan on driving. Leased cars come with mileage restrictions, often an average of 1,000 miles per month. Going over this amount could cost you surcharges that can be as much as 20 cents per extra mile.
The cost of repairs can hit both car buyers and lessees. Cars are typically leased for three years, so if you lease a brand-new vehicle it will likely be under warranty for the duration of your lease. But you may still have to pay for maintenance and repairs, and you might even be required to replace worn tires, scratched windows or other blemishes when you return the car.
But putting lots of miles on your car can be an even bigger problem if you want to lease. Auto leases usually come with mileage limits, typically set around 12,000 miles per year for a standard lease. Going over that number could mean being penalized at a rate of about 15 cents a mile.
But leases may not be as flexible as you think. If you get tired of your car or your needs change, you may want to think twice about turning the car in before the end of your lease. If you break your lease early, you could be on the hook to pay some steep penalties. You could even be required to cover all of the remaining lease payments and pay additional penalties on top of any other fees. Ouch.
When your auto lease ends, you have a few options: Turn in the car and buy or lease a new one, or buy the car you're leasing from the leasing company. If you've fallen in love with your leased car, you may be tempted to buy it. Whether that's a good idea or not depends on its value, condition and mileage, as well as your budget. Here's how to decide if a lease buyout makes sense.
Like buying a car, leasing one typically involves making a large upfront payment and smaller monthly payments over the lease term (generally two or three years). The key difference is that a vehicle becomes yours when a loan is paid off, but you won't own a leased car when its lease is up. At the end of a lease, you return it to the lessor, who sells it through a dealership or at auction. They may also give you the option to buy it.
Lease agreements typically list a purchase or buyout price. This cost is commonly a combination of the vehicle's residual value (the vehicle's projected end-of-lease value that's determined at the beginning of the lease) and a purchase option fee the leasing company may charge. Unfortunately, the lease payments you've made on the car don't go toward buying it, so you'll have to either come up with the cash on your own, or secure financing that covers the vehicle's buyout price. When Should You Buy Your Leased Car? Does buying your leased car make financial sense? Ask yourself these questions to decide.
Also consider any other savings or costs from buying a leased car. For example, you'll generally pay less for registration and insurance for an older car than a newer one. However, older cars are typically more prone to mechanical problems and need more maintenance than new ones, which could mean higher repair costs. How to Pay for Your Lease Buyout Once you've decided to buy your leased car, the next step is financing the lease buyout. Leasing companies and dealerships may offer to arrange financing, but you'll boost your bargaining power (and potentially save money) by getting preapproved for a car loan from a bank or credit union before you approach the leasing company.
To get the best financing offers, check your credit report and credit score several months before your lease ends. If your score is lower than you expected, improving your score before you shop for a loan can help you get a better interest rate.
Once your credit score is shipshape, you can start going over your financing options and submitting loan applications. It's wise to submit multiple preapproval applications to a variety of lenders to shop around for the best interest rate. Credit scoring systems generally treat multiple loan applications in a short period as one application, so submit all your applications within a two-week period and they'll be combined into one hard inquiry as far as your credit scores are concerned. Alternatively, getting prequalified for a loan will give you a ballpark idea of your financing costs without any impact to your credit. Can You Negotiate a Lease Buyback Price?Depending on the lessor, you may not be able to negotiate the price of your lease buyback. However, some leasing companies are willing to bargain to avoid the time and costs involved in reselling the car on the lot or at auction. Others may be willing to reduce the price if you finance the vehicle with them so they can keep you as a customer.
Use the research you've gathered to show that the car's residual value is lower than that in the contract. If the lessor won't negotiate on price, see if you can get them to remove the purchase option fee. Are you preapproved for financing elsewhere? See if the leasing company will match or beat the offer. To Buy or Not to Buy Your Leased CarYou may be crazy about your leased vehicle, but the decision to buy it when the lease ends should be based on more than just emotion. Carefully assess your budget, the car's condition and cost, and your financing options before you make the leasing company an offer. Whether you lease or buy your next car, maintaining a good credit score will make it easier to get favorable financing terms. What Makes a Good Credit Score? Learn what it takes to achieve a good credit score. Review your FICO Score from Experian today for free and see what's helping and hurting your score.
Is it better to lease or buy a new car? Ask most people and they'll probably tell you that car buying is the way to go. And from a financial perspective, it's true, provided you're willing to make higher monthly payments, pay off the loan in full and keep the car for a few years. Leasing, on the other hand, can be a less expensive option on a month-to-month basis. It's also good if you're someone who likes to drive a new car every three years or so.
Since everyone's situation is different, here are the pros and cons of leasing and the pros and cons of buying. Some of these points are financial factors and others relate to your needs and lifestyle. Keep in mind that there isn't always a perfect answer to the question of whether to lease or buy.
You don't own the car at the end of the lease (although there is always the option to buy).
Your mileage is typically limited to 12,000 miles a year (you can purchase extra).
You may find lease contracts confusing and filled with unfamiliar terminology.
You'll pay more in the long run for a leased car than you will if you buy a car and keep it for years.
You could face excessive wear-and-tear charges. These can be a nasty surprise at the end of the lease.
You will find it costly to terminate a lease early if your driving needs change.
You can modify your car as you please.
You'll save money over the long term if you buy a car.
You can drive as much as you like. There's no excess mileage penalty.
You have more flexibility since you can sell the car whenever you want.
You can use the car as a trade-in on the next car you buy.
You have to pay a higher down payment to avoid being upside down in the loan (owing more than the car is worth).
Your monthly car payments are higher than lease payments.
You're responsible for repair costs once the warranty expires.
You face possible trade-in or selling hassles when you decide to get your next car.
You'll have more of your cash tied up in a car, which depreciates in value.
If you want to dive deeper into the economics of leasing and buying, take a look at "How Much Car Can I Afford?" It has a detailed discussion of a few car-buying scenarios. We also recommend you try out the Edmunds Auto Calculators to see what your lease payments would be and to compare lease costs to car purchase costs.
The main difference between financing and leasing a car is the end result. When financing a car, you are borrowing money from a bank, finance company, or credit union to slowly purchase your car over a certain period of time. When leasing a car, you are paying for the right to use the vehicle for a defined amount of time and miles. The monthly payments on a lease are usually lower than the monthly payments if you bought the same car. When the lease ends, you must return the car unless the lease agreement lets you buy it. [2] 041b061a72
