BUYING VS. LEASING A NEW CAR

Happy woman in a car with the keys.jpeg

Know the fine print
When you want to get yourself a new car, often the first question is, “Should I buy it or lease it?” There are pros and cons to both and it depends entirely on each person's individual needs and desires. When purchasing a car, you will typically have a significantly higher monthly payment--but by the end of the loan, the car is entirely yours. On the other hand, while leasing the car will afford you a lower payment, you will always have a monthly car payment. A plethora of exciting, new features and advanced technology on almost every new model on the market today has led to record auto sales across the country. Although 2017 was the first year in last eight years to not top the previous year's sales numbers, the figures remain staggering. In 2017, 17.25 million new cars were sold, down 1.8% from the previous year. With all the advancements in safety and technology, the boom in the leasing business has been unprecedented.  Attractive finance rates have also contributed significantly to this trend. 

Comparing Car Loans and Leases
Below are some of the major differences between buying and leasing.  

 

BUYING LEASING
Ownership You own the vehicle and can sell or trade it at any time. The vehicle is "rented," and either returned at the end of the lease period, purchased for the residual value at lease end, traded in if there is equity in the car, OR sold to a dealer or through a 3rd party buyout, again, if there is equity.
Typical start-up costs Taxes, registration fee, title fee, insurance, dealer fees, potential down payment. Acquisition fee, taxes, registration fee, insurance, dealer fees, first month's payment, disposition fee (paid at lease end)
Recurring Monthly Payments Since you are purchasing 100% of the car, the monthly loan payments end up being higher than lease payments, and taxes are paid on 100% of the vehicle. Payments end at loan maturation. Lease payments are almost always lower than purchase payments because you’re only paying for the depreciation of the vehicle over the lease term, plus the rent charge (a euphemism for interest in a lease), taxes, and fees. In most states, rent charge and taxes are only paid on the depreciated portion of the car, as opposed to on 100% like in a purchase.
Early Termination You can sell the car at any point in time, and use that money to pay off any remaining loan payments. No charge for not finishing the full loan period, but you, of course, do need to compensate for your end of the agreement. Ending a lease early can be challenging. In most instances, you can have someone else "assume" the lease in your place. Sometimes a manufacturer offers a "pull ahead program" where they waive a number of remaining payments. Watch out for a dealer who claims they will "make your last few payments," as there is the possibility they will roll those payments into your new lease without your knowing it! In any event, always read the fine print.
Annual Distance driven The vehicle is yours! Take in the open road! Drive all the miles you please Since the lease is based on the concept of wear and tear and consequent depreciation, the majority of leases are offered at 10,000 or 12,000 miles per year. While this is sufficient for many, you may pay for more miles. If you expect to be close, compare the over-mileage penalties with the cost of higher annual mileage built into your lease payment.
End of Term At the end of the loan term, you will have zero balance on the loan to be paid. Also, you may sell your old vehicle to pick up a new one. At the end of the lease, you can purchase the car for the residual value determined at lease signing, trade it in for a new car, or you can lease another vehicle from the same manufacturer. In these instances, you pay no disposition fee. Or, you may complete the lease and return the car back to the manufacturer and try a different brand. In that case, you will likely pay the disposition fee. You may also need to pay additional charges in case of excessive wear and tear.
Flexibility Once owned, you can easily get out of the car. Until then, you are responsible for paying the loan in full within the time period agreed to. Great option for people who like to keep cars for longer periods of time. While a car lease is more challenging to get out of early, it allows you the opportunity to drive a number of different cars and keep up with the growing technology. Many self-employed folks write off a portion of their lease payments each month. As always, seek a tax professional on that subject.
Warranty Each manufacturer has different warranty programs. It is worth noting that you will be responsible for any repairs and maintenance that need to be made beyond the warranty period. Upkeep, repair, and maintenance are added expenses to consider. Through most 36-month lease terms, you will be covered with full maintenance and a new car warranty for the entire lease period and will remain covered for as long as you continue to lease cars.

Negotiating Car Buying or Leasing contracts can be a tricky affair with a lot of fine print that could potentially make the total cost of ownership higher by a few thousand dollars. Trust in the expert negotiating abilities of a buying and leasing expert to get the best deal on your car.