Looking at getting a new car? Well, you need to decide whether or not you want to lease the car or buy it. But, how can you know which one is the best option for you? Both options have their fair share of positives and negatives, it is just a matter of knowing them and then choosing which ones will fit your lifestyle the best. The main difference is that when you purchase a car, you will be paying the bulk of the purchase price and you will own the vehicle. If, however, you decide to lease the vehicle, you will only end up paying a fraction of the sale price but you will have some restrictions.
Whether or not you want to go down the traditional road of buying a new car or try the more modern approach of leasing your new car, this article will help you make the best decision.
Understanding what it Means to Lease a Car
When leasing first became an option, it was mainly reserved for businesses and qualified individuals looking for luxurious cars. However, the market has shifted and it is now possible for all types of cars to be leased. According to statistics, 3 in every 10 new cars are leased instead of bought.
In simple terms, leasing means that you do not pay the full price for the car and you never truly ‘own’ it. A car’s value depreciates over time and use and the lease amount that you pay is to compensate for this. Of course, extra fees and interest are applied as well. For the first lease payment, you will usually have to put forward a larger amount. The balance will then have to be paid in monthly installments over the course of the lease period.
Sounds simple enough, right? Unfortunately, it is not as simple as it first seems. The concept may be straightforward, but the contract can often be intricate and confounding for those unfamiliar with certain terminology.
There are a few key benefits that you can enjoy when you lease a car instead of purchasing it.
5 Pros Of Leasing a Car
- Lower Monthly Fees
This is potentially the most attractive benefit that most people are driven to. As mentioned before, you are going to be paying for the depreciation, interest, and fees. This means that you will be paying less than you would if you were to purchase a new car. If you lease a car, you will be able to have a better car (more expensive car) and afford more extras than if you were buying a car.
Even though finding a manageable financial plan for a more luxurious car is more attractive, don’t base your decision solely on this alone as there are many other factors to consider as well.
- Enjoy the Latest Technology
Having a newer car means that you will be able to delight in some of the latest technology. Newer car models are fitted with more handy gadgets and tech. Some of these features include driving assistance, automatic emergency braking, lane keep assist, and even some advanced connectivity features. Can you imagine enjoying 4G LTE data connection while on a road trip? Well, even some of the more economical cars can be fitted with it, and even other connectivity features like Apple CarPlay and Android Auto. What’s more, you could even be able to afford to lease a car that is lighter on fuel or a model that has more advanced fuel capabilities.
- Warranty Coverage and Maintenance
If you don’t plan on driving hundreds of miles every day, you will be able to enjoy a warranty from the manufacturer. And not just for the first month, but for the entire lease period. This is because the majority of leasing contracts are set for only a couple of years. If something goes wrong with the vehicle, you will be able to send it in for repairs without having to be concerned about footing the bill.
You can even find a lease that includes maintenance every few months. This periodic maintenance can last for the partial amount of your lease or for the full time, depending on your contract. At the end of the day, this is a major plus, meaning you will have fewer surprise expenses.
- Enjoy Easy Trade-Ins
So, what happens after your lease is finished? Well, just drive the car back, settle outstanding balances and go home. Or, you could simply drive home with a newer model or lease a vehicle that you have been dreaming about. When you purchase a car, trade-ins can be complicated and you could end up losing money as a newer model will naturally be higher priced than your older trade in.
- Sales Tax
Tax regulations may differ between countries and states, but the one constant that you can rely on is that the sales tax will be high. The sales tax depends on where you live, but some areas only apply tax per the amount paid each year. However, in other jurisdictions, you will be liable for the sales tax of the car’s total value. If you are in an area where this is the case, it could make you rethink leasing as an option. But, when you purchase a new car- no matter what area you are in- you will be liable for the sales tax on the total price that you paid for the vehicle. Before you make any concrete decisions consult a tax professional that can provide you with all the information and legalities that you need.
Okay, now that we have covered the benefits of leasing a car, let’s examine the potential downsides.
5 Cons of Leasing a Car
- It is Never Yours
You don’t actually ever own the car. Think of it in the same line as renting an apartment instead of paying for a mortgage. While this is not a deal-breaker for some, it definitely should be factored into the debate. So, who actually owns the vehicle? The dealership that you signed the contract for the leasing of the vehicle does. You are allowed to use the car as long as you abide by the stipulations within the contract. If your car is stolen or totaled, then you would not be paid out and you would have to lease a new car.
- Mileage Limits
No matter which dealership you lease through, or what car you lease, you can be certain that your contract will come with pretty strict mileage limits. This doesn’t mean that the car will simply stop in the middle of the road if you hit the limit, but it does mean that you will have to pay. The amount that you have to pay will depend on what type of car and contract you have. But these charges range between 15 to 30 cents per mile.
- No Cash Back
When you buy a new car, you can at least keep it as an asset (albeit a depreciating one), and you can get money back once you resell it, should you choose to do so. If, however, you are leasing your car you do not have this as an asset. When you return the car at the end of the lease period you do not get any cash back. What’s more, once the lease is up you could end up paying in for extra mileage. But why does this matter when you want to lease a new car? Remember that even when you are leasing a car, you will need to put down a down-payment. When you return the car once the lease is up, you won’t have that extra in your bank balance to be able to comfortably put down the down payment for the new lease. However, you can also find a lease that does not require a down payment, just do some shopping around.
- End of Lease Costs
We have already touched on this subject but it is quite a big factor and deserves to be on the list of cons. If you exceed the mileage limit, you will have to pay in some money. Additionally, if the vehicle has excessive wear, then you may have to pay as well. The dealership will be the judge of whether or not the damage constitutes extra payment or not.
- Restrictions
Besides the mileage, your lease contract could come with additional restrictions. Some dealerships specifically restrict driving the car in certain areas. You will need to check for the specific legal issues in your area. If you want to take a cross-country trip, you may have to request written approval from the dealership. Furthermore, if you enjoy customizing your car and engine parts, you will have to remove these before returning the vehicle even if these customizations could add to the overall value of the car, your dealership expects the car to be returned without any extra additions.
Conclusion
Whether you choose to opt for leasing or not, the end judgment needs to depend on your personal finances, how you plan to use the vehicle and how long you want to have the vehicle. Keeping yourself informed of all the information will help you to make the best decision for you and your family.
Image Source: Pixabay
