Investing in a car can be stressful. Not only are there many vehicles and dealerships to choose from but car shoppers have to decide whether to lease or buy such options. Understanding the pros and cons of each finance option helps shoppers make an educated decision that is right for them. The following includes some basic information about what buying and leasing vehicles entails.
Understanding the Difference
When a person buys a car, they pay for the entire cost of the car. The length of ownership and number of miles driven do not affect the purchase. Often, people buy the car outright or use a car loan. If a car loan is used, there is a down payment, taxes, and then interest rates on the financing or loan. Leasing means that a user only pays for a piece of the vehicle. This is the part that the driver uses. A security deposit may be required. One pays for a certain number of miles. When the lease ends, one can purchase it or return the car.
Benefits of Buying
The best benefit of purchasing a car outright is that the user owns it. The car owner can thus sell the vehicle whenever he or she wants. Additionally, one doesn’t have to pay attention to mileage or worry about the end of a lease. Insurance limits on owned cars are usually lower than leased options. There is simply more freedom for those who own cars versus lease them.
The Downside to Buying
The biggest drawback to owning a car versus leasing it is the high monthly loan payments. Loan rates are much higher than leased rates. Not every person has enough money for a sizable down payment. This investment is much bigger than leased cars. Over time, cars lose value, especially the first few years. As time goes by, the investment may work against the car owner (i.e. the down payment and monthly payments may be more than the car is worth).
Benefits of Leasing
A chief benefit of leasing a car is its affordability. Leases often do not require a down payment, and if they do, these rates are lower than car loan payments. Additionally, monthly payments tend to be lower for leased options and there are no upfront tax payments. Having a car for a fixed number of months means that people pay for use of the car but do not have to deal with depreciation issues. People can also try out different vehicles every few years. Small business owners can also write of the cost of leased vehicles.
Drawbacks to Leasing
The biggest drawback to leasing is that the user will not own the car. Some people hate paying only to use a car. Additionally, drivers must pay attention to how many miles put on the vehicle. Going over the allowed rate results in high fees. Insurers often charge higher rates to cover leased vehicles. Any scratches and normal wear and tear can come with high fees too.
People who need a car really need to think long and hard about leasing versus buying a vehicle. A person’s savings and incomes will no doubt affect this decision. Understanding the benefits and drawbacks of the financing options ensures that one makes a smart decision.
