Should You Lease a Car, Or Buy It?
To lease or to buy? Anyone who's ever decided to plunk down some serious cash for a car has asked them selves this essential question. In today's post, we want to highlight the benefits of both, to help give you an idea of what type of set-up might suit you best.
When Should You Lease?
Leasing a car is typically a really great way to go if you meet a few key financial conditions. The first condition that should be met if you're considering a lease is that you don't have a down payment for a car. With leasing, your interest, income, and credit score will lock you into a multi-year contract with a monthly car payment. Leases can be fairly short-term, or as long as five or six years. There are penalties if you decide to turn your car into the dealership before the lease is up, and leases will come with restrictions on mileage.
If you have a large commute to work, enjoy road trips, or just have a busy life-style that requires you to be on the road a lot, a lease might not be a good fit for you. Penalties for going over your contracted yearly mileage can cost thousands of dollars, and at the end of the day, unless you choose to buy the vehicle outright (in which case, the overages for mileage should be waived) you're going to pay a lot more to essentially "rent" a car. On the other hand...
Leasing is also great if you enjoy having a new car every few years, or like the peace of mind that comes with driving a vehicle covered by the manufacturer's warranty.
When To Buy
If you're looking for a way to diversify your credit, don't like the idea of renting your car, plan to drive your car for years, and don't mind investing in repairs, then buying a car can be a smart move.
When you buy a car, your credit benefits above and beyond just making consistent payments on time. With ownership, you're adding a different type of credit line to your personal financial portfolio; this helps show banks and other types of creditors that your debt isn't just credit cards, or maybe a student loan, and makes you more attractive as a future borrower.
Buying a car--whether new or used--is also more of a risk than leasing, because cars are immediately depreciating assets. The minute you drive a new car off the dealership lot, it loses a chunk of its value. If you're considering buying, take a hard look at whether or not you really need to buy new (and maybe you do!), or if you'd be just as happy buying a certified used car, or used car.
When you buy a car, you own the "note" on it--consider the note on your car the same way you'd think of a deed to a piece of land. When you own the car, it's yours to sell. In some cases, you might find that the car you bought has maintained its value above what the market predicted, and your depreciating asset might actually end up making you a few bucks. (Not all makes and models maintain their re-sale value equally, so when you're test driving vehicles, be sure to research how well the manufacturer's cars historically hold their value.)
Also, if you decide that buying a car is the way to go for you, you'll need to save up a down payment which can vary widely (from maybe a thousand dollars to multiple thousands of dollars). If you need a car today, and don't have a down payment (and don't anticipate being able to save up for one for a long time), leasing may be your best option.
At the end of the day, every driver is different and we don't all need the same deals. Taking some time to consider what your options are, the urgency of your situation, and how much owning a new car is important to you, will pay off in the long run.
And for those of you just getting started with car ownership (or "leasing-ship"), welcome to the club!