Aside from picking the kind of car you want, as well as the colors and options, there’s another big new-car decision to make: buying or leasing.
It’s a big choice to make, because leasing has some obvious benefits in the form of lower payments and tax advantages in some situations. But leasing means you could be subjected to hefty fees and penalties at the end of the term. For some, financing to own a car is the safest way to go. Here are some things you should consider when deciding how to pay for your next new car.
With a lease, your payments are going to stay lower because you’re really paying for the car for the time you own it. Payments are broadly determined by how many months your lease lasts and how much money you’re using for the down payment. Leases also tend to be more subsidized by an automaker’s finance arm. And depending on your tax or work situation, a lease payment could be advantageous.
Finance a car and you’re going to have a heftier monthly payment that’s dependent on both the down payment and what kind of interest rate you’ll get from your lender. Aside from cash incentives, there’s not much else that can be done to lower your payments than bringing more money upfront to the dealer.
On a lease, you’ll be greeted with a list of fees you may or may not have to deal with. Automakers usually impose a disposition fee, which is what you pay upon returning the car at the end of the term. There’s usually a security deposit to pay upfront, as well. There’s also the expectation you’ll keep the car in like-new condition, meaning the tires can’t be too worn out, the glass needs to be in perfect shape and there can’t be scratches, dings or stains on the upholstery. If there are, there will definitely be prices to pay upon returning your car.
Because you’re not expected to return the car to the dealer when you buy, there are fewer of these costs to consider.
Mileage and Modification Restrictions
Of course, the main advantage to buying a car is that you never worry about exceeding your allotted mileage, as you would on a lease. You’re also free to make modifications and personalize your car. On a lease, you pretty much need to return the car as it was when you bought it to stave off costly fines.
For some, staying within the mileage restrictions won’t be a problem. If you don’t use your car for many long trips or have a short commute to errands or work, then it’s not a problem. There’s the ability to buy extra miles for your lease, but it can add much more money to your monthly payment and possibly negate the cost savings over buying.
Insurance and Repairs
When the automaker’s financial arm owns the car, there are sometimes minimum insurance requirements to factor in. With a new car, it’s best to keep a good amount of insurance to cover things if the car is totaled or stolen. Factor this into your ownership costs.
Also consider the length of the lease and what kind of repairs you might have to pay for out of pocket. If you lease for 48 months and the car is out of warranty in 36, realize that you might have to pay to fix the problems when you turn the car in. Automakers also offer glass and wheel and tire coverage, which is possibly worth it if you think you’ll have problems in those areas during your lease. Again, if the windshield gets cracked, you need to buy a new one – and not some off-brand replacement if you lease.
How Long Will You Like Your Car?
If you lease a car, expect to give it back when the lease is over. It doesn’t make sense to get roped into payments for 36 months and then finance the rest for another 60. That means you could be paying for a car for eight years – an unwise decision.
Whereas if you buy a car and finance it for five years, you could drive it into the ground and only worry about maintenance costs after the loan is paid off. Or live without payments for a couple years and save for a healthy down payment on a new one. Ultimately, if you’re not the kind of person who wants to shift into a new car every two or three years, buying your car is the way to go.
It’s best to prioritize whether you are a candidate for buying or leasing before you consider the kind of car you want. Don’t go for a lease because it’s the easiest and least expensive way you’re going to get behind the wheel. That’s a recipe for incurring high costs and exceeding mileage limits. At the same time, don’t buy a car you’ll be tired of after two or three years, either.