You have heard your neighbors or coworkers brag about what a good deal they got by leasing a new car, but you remember your dad’s advice about leasing being a waste of money. Could it really be more cost effective to lease a car than to purchase one? If Dad was right, then why do your friends keep leasing their vehicles year after year? The answer is not a simple one, but by examining several factors, it is possible to make a good financial decision about whether to lease a car or buy it.
The following questions should be considered before making a deal on your next car:
How much is the Down Payment?
Depending on a buyer’s credit rating and the deals being offered at the time of purchase, a down payment on a new car can really take a bite out of his or her savings. Even though leasing a car may require enough funds to buy the tag and make the initial payment, this amount is often less than what would be needed to purchase the vehicle.
How many Miles do You Drive Every Year?
Most leases require that the driver pay a penalty for putting on more miles than the contract allows. The mileage allowed is usually around 3,000 miles so drivers who will exceed this by hundreds of miles need to factor in this cost. It may be possible to negotiate and pay for extra miles on the contract at the time of the leasing to reduce this expense at the end.
Are You Skilled Enough to Do Part of the Vehicle Maintenance?
Leasing a car means that the vehicle remains under warranty, and the dealership will be responsible for any major repairs caused from manufacturing defects. Because the car is always less than three years old, repairs from wear and tear are negligible. Consumers who buy a new car must cover these repair bills themselves, especially as the car ages. Those skilled enough to make most repairs themselves can save a bundle if they keep a car for longer than five years. They will also have equity to use toward the purchase of their next vehicle.
What is Your Tax Situation?
Generally, leasing a car makes the tax burden a bit easier to endure because taxes are paid every month as a part of the lease payment. This means you are only paying for that portion of the car that you are using that month. When a vehicle is purchased, the taxes are added to the total cost upfront which means that interest will also have to be paid on this portion of the borrowed money as well.
What Will Insurance Cost?
Depending on the provider and the location of residence, insurance on a leased vehicle may be at a higher rate. Gap insurance, that helps defray depreciation of the vehicle if it is a complete loss, can be purchased to cover the first two years of vehicle ownership and is quite reasonably priced.
How Long Do You Plan to Keep the Vehicle?
Most leasing contracts include an early termination clause. If your job is not secure or your financial circumstances are shaky for other reasons, leasing may not be the best option for the moment. Most people, however, keep their leased vehicles until their leases expire. This prevents them from having to pay any penalty when they return their vehicles early.
What Type of Deals Will the Dealership Offer?
In today’s tight market, rebates and interest free offers abound for those purchasing a new car. However, those who are thinking about leasing a vehicle may also have some room to negotiate terms. The residual value of the vehicle, the money factor, and the capitalized costs may all be bargained.
In order to make a good financial decision about whether to lease a car or buy one, consumers should look carefully at their needs and current financial situation. Before they visit a dealership, they should do their research. They need to know the tax requirements in their state and should also question their insurance agent about the ramifications of buying versus those of leasing a car. It is only possible to make a great decision about your next car purchase after serious consideration of all of the variables involved.