Lease vs. Buy: Which Car Finance Option Is Right for You?
You and your car spend a lot of time together – 15 miles to drop off the kids at school, another 10 miles to work, five miles to grab lunch, another five miles to drop into the gym, then add miles for soccer practice, going to the grocery store, and at some point, returning home. That all adds up to… a lot of miles! If you are leasing your beloved car, the average 45,000 mile cap you agreed to in your lease drive up on you pretty quickly, leaving you with two options – buy the car or pay the additional mileage charge, which can be upwards of 25 cents on the mile.
While leasing the car may seem like an attractive option, you need to assess the practicality of it before deciding whether you should lease or buy that next car. Let’s take a look at the pros and cons:Leasing: You don’t own the car:
Much like an apartment, the car you are leasing is not yours — you are renting it for an extended period of time. Since the car technically still belongs to the dealer, they are likely to give a lot of free standard maintenance to keep the car in working order, assuming you will be paying off and returning the vehicle and the car can be used for a new lease.Payments tend to be lower:
Lease payments, on average, tend to be lower than car payments, as you are paying for the depreciation that occurs during the term of your lease. However, these low payments may come with a high down payment.Mileage:
Lease deals operate on a mileage cap, often averaging 10,000 – 15,000 miles per year. This means you only have 40,000 -45,000 miles to drive before the lease ends. If you pass the cap after a year, you still need to pay out the mileage overage. The reason dealerships charge this is to keep the mileage low for their potential resale. Thus they will charge a fee for miles over the cap.Buying: You do own the car:
This is your vehicle, you own it and you are responsible for it. Many dealers will cover new cars under a warrantee for up to a certain mileage or time cap, meaning three years or 45,000 miles before the repairs fall on the owner. But there are some benefits to not worrying about the miles, as well as being in complete control of the vehicle for its lifespan.Payments may be higher:
If you finance your car, you’ll have likely have several options for the length of your loan, as well as add-ons for warrantees, prepaid maintenance, and more. According to a recent Nerdwallet article, payments on average can be about $530 per month for a new vehicle and $430 per month for a lease. Know your options! Get pre-approved for an auto loan.Drive wherever you want:
No mileage cap means you can drive your vehicle to your heart’s desire, but know that mileage is slowly eating away at its resale value and could impact your ability to trade or sell your car in the future. Regular maintenance is always a benefit to keep the car running as mileage increases and ensure that you get the best resale amount possible.Tips and Tricks:
- When going in to purchase a vehicle, make sure you’re prepared. Follow our guide to buying a car and know what fair value is for the vehicle you’re looking at, as well as your trade-in. Know how much you can spend before you even walk in the dealership by getting preapproved.
- Negotiate on a down payment. Both lease and purchase vehicles will come in with a down payment requirement, unless otherwise stated. You are the customer, so use your negotiating power to talk the down payment down. You can always walk away or say no — they need your business, not the other way around.
- Start a savings account for car repairs. When you buy a vehicle, you are on the hook for repairs and they will come eventually. The best thing is to have those funds set aside in a savings account for a “just in case” scenario.
- If you are considering leasing, calculate your mileage before you sign for the contract. For example, if you travel 50 miles to work back and forth each day, plus 25 miles every weekend to play soccer, in this example you would go over the 45,000 mile cap in approximately two years. If this is the case, consider purchasing a vehicle instead.
In the end – do your homework, check your financing options, and make sure you’re very well-informed of the miles you drive before making your decision. Think buying your car is the right decision?
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