Financing vs Leasing

Financing vs Leasing

Choosing whether to lease or buy a car can be tough. The right decision can be based on factors including: Your liquid cash, Your credit score, How much you drive, How long you hope to have your vehicle.

Below is outlined the pros and cons of each option to help your car buying process.

Leasing: Pros & Cons

Pros:
-Lower monthly payments.
-In general, lease agreements promote lower monthly payments. In addition, many car dealers will offer lease specials to help move new vehicles off their lots.
-Lower down payment.
-Car loans typically don’t require a down payment. Drive off fees, which include your first month’s payments, can be due at lease signing, but if you have excellent credit, you shouldn’t have to put any additional money down.
-You can drive a brand new car every few years.
-When you buy a new car, if you decide you don’t like it after a few years, you’re stuck with it. With a lease, you can trade it in for something else when the lease term is up—no questions asked.
-You’re only paying for part of the vehicle cost.
-When you buy a car, you’re financing the entire value up front. On a lease, you’re paying for the difference between the car’s value at the beginning and end of lease.

Cons
-Leasing is hard with poor credit.
-When your lease is up, you don’t own the car.
-If you finance (buy) a car, at the end you’ll own your vehicle. Not with a lease. At the end of your lease term you’ll either need to buy the car outright (you can finance it like a used car purchase) or trade it to start a new lease.
-Mileage is limited.
-Most leases are limited to 10,000 to 12,000 miles annually, and if you go over, you have the potential to be charged $0.15 to $0.25 per 1 mile at the end of your lease agreement, which can add up quickly.
-Wear and tear is your responsibility.
-At the end of your lease, you are required to turn the vehicle in a good, non-altered condition.
-Leasing can be more expensive.
-If you fall into the cycle of leasing one car after another, you’ll end up spending more money over time.
-Early termination can be costly.
-If you decide you don’t like your vehicle, or are unable to continue your lease agreement, you’ll be forced to pay a high penalty.

Buying: Pros & Cons
Pros
-You own the vehicle.
-When you’re leasing a car, you’re borrowing it for a few years—but buying a car means at the end of a few years, you’ll have no more car payments, AND you’ll have a car to drive around free and clear.
-Change and modify the vehicle at will.
-Want to add a spoiler or change the color of your vehicle? It’s your choice—you own it.
-More cost-effective in the long run.
-At the end of a lease agreement, you’ll either have to lease another car, or pay the difference to keep the car you have.
-No mileage penalty.
-Pay a little more each month and you can drive cross-country as many times as you’d like. The mileage might bring your warranties to an end sooner, but there is no penalty to pay when your financing is up.
-Sell the car anytime.
-If you buy a car and decide it’s not right for you, you can sell it— even if you’re financing it. The challenge of leasing versus buying a new car is you’ll be upside down on the purchase of a new car for the first few years, but you’ll own it sooner and can sell it when you want.
Cons
-Higher down payment.
-When you buy a car, most manufacturers ask for a down payment of 10% to 20% of the value of the vehicle.
-Higher monthly payments.
-Financing on a new car includes both a payment toward the total value of the vehicle along with an annual percentage rate (APR). The higher your credit score, the lower your APR and ultimately your monthly payments. But, since car leases do not include these percentage rates on the vehicle price, their payments can sometimes be hundreds of dollars lower.
-Maintenance costs are your responsibility.
-If you lease a vehicle, you’ll usually turn it back in before maintenance costs start adding up. With a purchase, you’ll most likely keep a vehicle long after the manufacturer warranties end and you’ll be paying for all upkeep out of pocket.
-Depreciation value ties up your cash.
-When you drive a new car off the lot, it begins depreciating rapidly—some makes and models more quickly than others.
-Trade-in or resale falls on you.
-When you are ready for a new vehicle, whether it’s a few years or a decade after your purchase, you will be responsible for researching and handling trading in or selling your car.

(Information credit from http://www.dmv.org/buy-sell/new-cars/leasing-vs-buying.php )