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Buying Or Leasing A Car - What Is Best Option For You?

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  • Buying Or Leasing A Car - What Is Best Option For You?

    First off, if you are a car aficionado, then you will obviously choose to buy the car that you want to keep, modify and maintain for a long time. Car enthusiasts normally keep a car for a much longer time, compared to an average lease life of a few years. For some even, a particular car is kept for a lifetime and handed down to a son or daughter.

    On the other hand, leasing a car is the right thing to do for certain people. There are advantages to leasing a vehicle under the right circumstances. Basically, you don't own the car in a lease arrangement. You make payments on the car for for two or three years, then hand the car back to the leasing company. This arrangement is more like a long-term rental.

    This arrangement is the right thing for a person who likes to change cars every few years. In a lease, you have a contract with the leasing company for a fixed amount of time. The contract will stipulate what your payments will be per month plus tax. There will also be other conditions but these will be standard across all leasing arrangements with other companies too. At the end of the lease term, there will be a residual value for the car. This is the value that the leasing company puts on the car after you have used it during the term of the lease. The lessee (that means you) will have the option to buy the car at the end of the lease for the residual amount. You may want to consider purchasing the car if you have gotten to like it or the value of the car is above the residual. You can make some money if you have a leased car with a big difference in its residual value and the market value. Lease agreements specify a certain mileage. Most leases are constructed around 12,00 to 15,000 miles per year. If you go over the prescribed mileage, there will be a per-mile penalty at the end of the lease. So, if you drive a lot, leasing may not be for you.

    The option to lease normally allows a person to get a better car for the same payment as a lower-end car that has been acquired on loan. This is because of the residual value discussed earlier. You are only paying for the difference between sales price and residual. In a loan, you are financing the entire purchase price. For example, a car has a sale price of $25,000. On a three year lease, assume that the residual would be $15,000. You will be financing the amount of $10,000 for a 3-year lease arrangement. In purchasing that same car, you would finance $25,000 for either a longer term, or at a much higher 36-month payment. Also for a lease you would pay less sales tax. In a conventional purchase on a $25,000 car, you pay tax on the whole $25,000. In a lease, you pay sales tax on the monthly payment. In other words, your payment of $300/month is actually $300+sales tax. But you are only paying tax on the leased amount. Taking the earlier example, you are only paying sales tax on $10,000.

    Basically, when deciding to lease or to buy, it would be good to buy a car if you like to keep cars a long time, the cars are driven a lot, or you are ready to lay out a considerable amount of cash. Leasing is good for people who trade cars ever few years, don't drive more than 12-15000 miles per year, and have or want to put out little cash. It pays to be thoroughly informed about the pros and cons between buying and leasing, and make an educated decision based on your needs and lifestyle.

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