Is leasing or buying the best way to finance your next car? It's hard to give this a quick answer since there are so many trade-offs. However, if you take a closer look at your lifestyle, your needs and your preferences, you can reach a sound decision.
For example, if you need an upscale car for business, perhaps to entertain clients, leasing allows you to drive a luxury vehicle for less money. It might also provide a good tax write-off. However, if you don't need the status of a new car and prefer to keep automotive costs as low as possible, the best choice would be to buy a new or used car and keep it for as long as it is reliable.
Ultimately, you can say good things about both buying and leasing. Your choice might be more of a combination of personal tastes and priorities than pure dollars and cents.
Also, you can view sample calculations in this analysis of three common car financing scenarios: leasing, buying a new car and buying a used car.
Since everyone's situation is different, here's a list of the pros and cons of leasing and buying a car. Some of these points are financial factors and others relate to a person's needs and lifestyle. Keep in mind that there isn't always a perfect answer to the question of whether to lease or buy.
Advantages of Leasing:
- Lower monthly payments with a low — or no — down payment.
- You can drive a better car for less money.
- Lower repair costs because you are always under the vehicle's included factory warranty.
- You can more easily transition to a new car every two or three years.
- There are no trade-in hassles at the end of the lease.
- You pay less sales tax.
Disadvantages of Leasing
- 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).
- Lease contracts can be confusing and filled with unfamiliar terminology.
- In the long run, leasing is more expensive than buying a car and keeping it for years.
- Excessive wear-and-tear charges can be a nasty surprise at the end of the lease.
- It's costly to terminate a lease early if your driving needs change.
Advantages of Car Buying
- You can modify your car as you please.
- Car buying is more economical over the long term.
- 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.
Disadvantages of Car Buying
- It requires a higher down payment to avoid being "upside down" in the loan, meaning you owe more than the car is worth.
- Monthly payments are higher than lease payments.
- Once the warranty expires, you're responsible for repair costs.
- You face possible trade-in or selling hassles when you decide to get your next car.
- More of your ready cash is tied up in a car, which depreciates in value.
In a nutshell, leasing makes it easier to get more car for less money. This is because you only pay for the value of the car that you drive, instead of buying and owning the entire worth of the vehicle.
Buying frees you from the oversight that's involved in leasing. The car is yours to do with as you wish. Ultimately, it's up to smart car buyers to weigh the pros and cons, determine their needs and decide what choice best suits their lifestyle.
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