For one reason or another, your vehicle’s deterioration and/or failure to meet your daily needs may be forcing you to consider its replacement.
To complicate this further, the consistent evolution of the auto industry to meet the ever-changing needs of the sometimes fickle American auto consumer in today’s precarious economy can make it difficult to clearly understand the ins and outs of buying versus leasing new vehicles.
Making sense of the many factors involved in making a wise choice between buying or leasing a new car can be difficult. And in some cases, it may even be smarter to consider purchasing a quality used car.
In an effort to make this decision easier for you, we are providing a comparison of these three considerations. However, before we do this, you must analyze your specific auto needs and financial abilities. Take some time to try to answer these two questions to the best of your knowledge:
- After examining what it will take to meet your average monthly bills obligations, come up with an amount you may have as discretionary income. That is, an amount that if spent will not jeopardize your ability to live comfortably within your budget without fearing occurrences that may shipwreck you. Is the anticipated cost of insurance coverage a limiting factor? Keep in mind that insurance costs escalate proportionately with the total value of the considered vehicle.
- Analyze what your specific needs are in using your vehicle: Is it primarily for commuting, thus requiring substantially better gas mileage? Do you prefer your new car to be luxurious, or primarily recreational, with limited mileage requirements? Do you anticipate off-road or adventurous uses that may require four-wheel drive? Do you have children that may be using this vehicle? Is there a size preference?
Basic Differences Between Buying vs. Leasing:
With your personal projections in mind, let’s now describe the differences and comparisons between buying or leasing a new vehicle.
- When you “buy” a new vehicle you will eventually secure title and own it, and will realize equity, or “bankable” value, either to sell it later or use its trade-in value to offset a down payment. When leasing a new vehicle, you are essentially using the vehicle for a prescribed time period, at which time you must decide whether to purchase (or re-finance) it, or turn it in on a new lease contract.
- Costs to implement: Cash price, down payments, taxes, and registration costs are comparable for both, but leasing may also include a refundable security deposit.
- Monthly payments: Payments will be considerably higher for purchasing, as you will be financing and paying off the entire amount of the purchase price, including taxes and interest. Payments are lower when leasing, as you will be paying only for the depreciation of the vehicle during the lease period and lease charges.
- Mileage restrictions: With a purchase, you have no mileage limits, as opposed to leasing in which you will be required to stay within the limits set at time of purchase. These are generally set by the lessor, and are most often averaged out to annual limits ranging from 10,000 to 12,000 miles per year. If you know you will exceed these limits, it’s wise to purchase additional miles at the outset, as penalties for going over the mileage can be substantial.
- End of contract term: With a purchase you will own the vehicle outright, and may sell it for its market value at any time, even if it the loan has not been totally paid off. With leasing, at end of term you may opt to purchase the vehicle for its value at that time, turn it in on a new lease with any lease end costs, or just walk away. Another advantage of leasing is that you can move into a brand new vehicle at the end of every lease period, thus realizing all new technological developments that may be found with the entry of the new model. And paying for those improvements is substantially less than in purchasing.
- Customizing your vehicle, “excessive wear and tear,” and incurred vehicle damage: When you purchase a vehicle you may do anything you wish to your vehicle, including muffler and body modifications and engine changes. With leasing you will be required to return the vehicle in the condition it was at time of leasing. This will entail the costs of removal of any modifications you have placed on the vehicle. If damaged you will either be forced to repair the damage, or have its estimated cost of repair added to your termination costs. The basic rule: Do not customize a lease vehicle unless you plan on purchasing it at the end of your lease period.
Let’s talk about purchase of a quality used car:
Buying a used car has the advantage of a more accurate purchase value, as the vehicle has already absorbed the initial costs of purchase, and its price reflects true value without the cost considerations of setting up a new contract, as well as any depreciation by usage. Additionally, purchasing a used car can take advantage of private party sales, which in some cases can achieve substantial values over those found at dealerships.
The big consideration here is that purchasing from private parties means that in most cases you will be buying a vehicle “as is,” with no recourse in the event of faulty equipment. Purchasing from a dealer does generally provide you with some protection from unforeseen costs. If you do consider purchasing from a private party, then it would be wise to incorporate some type of insurance-covered maintenance and repair program. As many SUVs and multipurpose vehicles depreciate in value enormously from their new status, some absolutely great values can sometimes be found when purchasing a used vehicle of this type. Also, excellent quality older vehicles can be found much more readily in today’s drastically improved vehicles, especially in tried and proven brands such as Honda, Toyota, and others. If you have student driver or even consumer usage considerations, used vehicles are excellent considerations because of their low initial purchase costs and low maintenance costs, as well as insurance cost considerations.
There you have it. We suggest you take your time on analyzing these pros and cons. More than ever American auto consumers are taking advantage of both leasing and purchasing programs, and can take in advancements in dependability and reliability, and technological advances. And you may even decide after all to keep your older vehicle.
And always: Do your vehicle research! Everything you need is online.