If you’re shopping for a new car, you have a lot of things to consider. Maybe you’ve even narrowed it down to the make and model and already taken test drives and talked to the salesperson. Of course, there’s one thing left to consider – How are you going to pay for your new car? Most of us don’t have $30,000 or $60,000 (or whatever your budget) in cash just lying around, so you’re left with financing, leasing, or grand theft auto (just kidding on that last one – don’t try it, it’s just not worth it).
Most people finance their new car purchase, that is, make payments on a car until it’s fully paid-for, which is the way it’s been done since financing was invented. Leasing is slightly different, in that you make payments on a car, perhaps the same car, but only for a certain term. Today, over a third of new cars roll of dealership lots with a lease. Have you considered the advantages and disadvantages that each option offers? Here are a few things to think about:
Ownership vs Rentership
When you choose to finance your new car purchase, perhaps over a five- or seven-year term, you’re making a big commitment. You’re buying a car, and once you’ve paid it off, it’s yours to do whatever you will with it. Considering that the average age of cars on the road today is nearly 12 years, and many cars easily achieve over 150,000 miles, or about 10 years of average driving, owning a car doesn’t sound like a bad idea. When you finance your car, you might say that you’re committed to a long-term relationship.
When you choose to lease your new car purchase, usually a three-year term, you’re not really making a big commitment. You’re only paying for a small part of car ownership – one might even call it a contract rental. At the end of the term, you give the car back in reasonable-enough condition for it to be resold on the used-car market. Of course, you could decide you like the car enough to actually buy it, but most people like to get into a newer version of the model or different car altogether. When you lease your car, you might say that you’re setting yourself up for a short-term relationship.
Payments vs Class
One of the major differences that new car buyers notice up front is the difference in price between financing and leasing, not so much the overall price, but the monthly payment. Financing will require larger payments, but then you’re purchasing a car, not renting it. On the other hand, because lease payments are smaller, many see this as a chance to upgrade. Then, the question becomes, “Why finance a mainstream sedan when I can lease a luxury sedan?” or “Why finance a sedan when I can lease an SUV?” Often, leasing works out better for managing short term costs and is a good idea if your needs change, but it will be more expensive in the long run.
Should you lease or should you buy your new car? The answer isn’t straightforward. Dealers would love to get you in a lease, because it makes money for them, but you also get a new car to drive every three years. For the best long-term savings, if you plan on keeping your car for a long time, making budget adjustments right now will put you ahead down the road.Tags: lease or buy