Car leasing vs. buying which is better?

Car leasing vs. buying which is better?

The answer may depend upon how far you drive each year Fuel prices drop Options to buying a car Cost of maintaining an auto Driving habits affect care costs Good care gives used cars longer life Consider renting for vacations.

For those who live in their car, getting it serviced can be a problem. Look for a lease or purchase that includes free loan cars. Infiniti dealers, for instance, include loan cars as a matter of company policy. That's a valuable accessory. To be competitive, other car companies may offer the same deal if pressed -- so ask.

In addition, a person who owns his car has equity (cash value) in the car or truck. Even though it will continue to depreciate with each passing year, so long as it's still serviceable transportation, it will always be worth something. That value can be used as a trade-in; or the vehicle can be sold privately to help raise money to pay for a new one -- or for some other need.

Owners of small businesses and the self-employed face a confusing choice in deciding whether to buy or lease a car used primarily for work. In general, lease-to-buy is more expensive than buying the vehicle because it extends the payments on what's getting to be an older car by the time you own it.

Leases can be a tax write-off Many simply repair cars. If you choose to buy it:

  • You'll pay the residual value printed on your lease contract, regardless of the actual value.
  • Generally, the vehicle's actual value can be higher or lower than the residual value, depending upon how well your vehicle's resale value has held up. You can research an estimate of your vehicle's actual value.

Also known as “Contract Hire”, car leasing now accounts for nearly 25% of all cars on the road in the USA as opposed to car ownership. Considering that currently less than 1% of all cars in the UK are covered by car leasing deals, the potential for growth is enormous in the UK.

There are too many variables for a broad, general answer. Leasing is a lot like renting a car. In essence, you pay money over a specified period of time for the privilege of driving a particular vehicle. Or, looking at it another way, leasing is similar to obtaining a loan to buy a car, with a balloon payment at the end of the lease term.

Driving more than 12,000 miles per year usually carries penalties on leases. Take into account the additional costs for the excess mileage. Quite often, it's prohibitive. Although the payments may be smaller through auto leasing, if you buy a car when the interest rates are low, it is just a better financial decision to make the purchase rather than to lease. Buying a car will leave you with more flexibility later - if you ever want to sell it, you can. You cannot sell a leased vehicle.

Also, since you are only effectively renting the car, your total cash outlay should be much less. You won't have to make as large a down payment (a security deposit and the first month's payment are typical) as you would if you were buying. And monthly lease payments are almost always less than payments would be if you bought the car -- which means you'd have more money in pocket to spend on other things.

For those who live in their car, getting it serviced can be a problem. Look for a lease or purchase that includes free loan cars. Infiniti dealers, for instance, include loan cars as a matter of company policy. That's a valuable accessory. To be competitive, other car companies may offer the same deal if pressed -- so ask.

As with an apartment rental contract, car leasing will have a fixed period -- typically two or three years. You're obliged to make monthly payments for the length of the contract. While you can get out of the lease before then if you want to, there will typically be extra costs -- for example, an "early termination charge" -- typically spelled out in the car leasing contract you sign. And as is often the case with renting an apartment, you'll likely have to put down some cash as "security deposit" at the lease inception. This money will be used to pay for any damages to the vehicle -- such as door dings, stains on the seats, any needed service work, etc. -- when you return it at the end of the car leasing term.

The leasing people compare that payment with financing the purchase of that same car, same amount down, for 36 months at a 9 percent annual percentage rate. With those terms, you would pay about $685 a month (plus tax and fees). No contest, right -- $350 vs. $685?

The reality is that most consumers don't finance for 36 months. For most consumers, 60-month financing is now the standard, and 72-month financing is becoming increasingly popular. Using the same APR and down payment, the Accord will cost about $445 a month (plus taxes and fees) for five years. And, most important, it will still be worth a good chunk of change at the end of the loan if cared for properly.

Leases are advertised at low, tempting prices, but cars are being offered for purchase with no-interest financing, too.

Car leasing may also have tax advantages for you -- but this is something you'll have to ask your accountant about. In the past, most people who did car leasing were those who used their vehicle for business, such as realtors -- and who therefore could claim deductions for car leasing not available to those who purchased them outright.

Car leasing had the additional attraction of freeing up assets for investments and so on that would otherwise be locked into a depreciating asset -- the person's car or truck.

If you like to buy a new car every few years, auto leasing may be for you. When you lease a car you can not only lower your payment and drive a nicer car, but you change vehicles more often than if you owned the car.

A big advantage of car leasing is flexibility. You aren't making a long-term commitment. Typically, car leasing is for a relatively short period, 2-3 years being the norm. The average new car loan, on the other hand, is five years. When the lease period is up, you can simply bring the car back and walk away. Or you can buy it if you like by paying off the remaining balance -- called the "residual value" -- which you'll negotiate in advance at the time of lease inception.

You have to look at your driving needs. You have to look at the interest rate. What are your driving habits? How much mileage do you drive? All vehicles depreciate in value. If you look at leasing from a purely economic perspective and ignore the lifestyle issue, the best way to handle an automobile is to buy a used car and keep it for 10 years. That is how you create wealth. However, let's recognize in the real world a lot of people won't do that. A lot of us are going to buy a new car because we just like the smell.

Consider the following too:

  • If the actual value is significantly below the residual value or you simply want another vehicle, you can return the car to the dealer and walk away from it.
  • Read your lease contract carefully to determine any applicable charges such as termination fees, wear-and-tear repairs, or excessive mileage charges.
  • Shop around your local auto body shops for minor body and paint repairs; this will usually be less expensive than what the dealer will charge.
  • Also, if you are required to buy new tires, buying them from a major tire distributor will typically save you money versus buying them from the dealer.
  • What’s your initial outlay?
  • How much will you be paying while you possess the vehicle?
  • What final costs are there, at the end of your possession period?
  • What options rights do you have, if you're leasing, and what will they cost you?
  • Will you be able to deduct any of these expenses?

In addition, a person who owns his car has equity (cash value) in the car or truck. Even though it will continue to depreciate with each passing year, so long as it's still serviceable transportation, it will always be worth something. That value can be used as a trade-in; or the vehicle can be sold privately to help raise money to pay for a new one -- or for some other need.

Buying A Used Car?

Save up and buy a cheap car, then continue to save money to buy your next car. If you want a newer — not new — car, save for it.

If you pay cash and then pay $378 in car payments to yourself for 11 months, you'll have $4,000. Then trade your $4,000 Honda Accord in, add $4,000 and buy a better one for $8,000. Then pay yourself $378 for another 11 months, then trade that car in for $8,000, add the $4,000 you saved and buy a nice used car for $12,000.

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Comments

Yes you can sell a leased car. Leasing is just another way of financing. If you can sell a car that is financed, you can sell a car that is leased.

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