Whether your old car suddenly died or you’re in the mood for a change, it’s time to buy a new car. So you start to do your due diligence. You research the best makes and models. You construct a list of pros and cons. You’ve considered whether you want new or used or an extended warranty. You have a corkboard in your living room covered with index cards, car magazine clippings, and enough yarn to scare a cat. Finally, you decide on a car.
Your work doesn’t end there. You keep your poker face on when talking to the salesman. The slightest opening would become an attack point for them. You test drive the car, check under the hood, and even kick the tires. Everything checks out. As you sit down to start up the paperwork, the salesman throws you a curve ball. Do you want to buy or lease? Your poker face cracks. Your left eye starts to twitch. You begin shaking uncontrollably and are finally carted away in the proverbial paddy wagon.
Ok, so maybe that’s a bit of an exaggeration but the question will come up. So what do you do?
Leasing
The first difference you need to consider is what you’re paying for. When buying a car, you’re financing the cost of the car minus your down payment. When leasing a car, you’re paying for the depreciation the vehicle will experience during the term of the lease. This typically equates to lower payments when leasing a vehicle vs. buying one.
Of course, knowing the depreciation of a vehicle ahead of time is a science. For them to know how much the car will depreciate, they need to know how many miles you’re going to put on the car. Or, more specifically, they will limit the number of miles you can put on the car. If you exceed that amount, you’ll be hit with mileage overage charges, sometimes as high as $.20 a mile.
Another benefit of leasing is always being able to get the newest cars with the newest options. When your term is up, there is probably something nicer out there. Simple enough. Return the car and lease the newer one. You don’t have to worry about being upside down on your current car, or stress over the trade in value or the possible benefit of selling your car.
Of course, that also translates to having no equity in your car. When your lease period is up, you have nothing to show for it. It’s a lot like renting an apartment. When you’re done, you’re done and you start over. And, like any apartment, you can’t just remodel when you feel like it. Any alterations would need to be approved at the time of signing the lease.
Buying
Understanding the benefits of buying a car is a lot simpler. If you’re likely to be happy with a car for a long time, buying means it’s yours. If you like your lease vehicle, you have the option to buy it, but you’re buying a used car with nothing to show for the money you’ve invested.
Leasing is also usually only a viable option if you have stellar credit. Buying can be more sympathetic to a lower score.