People encounter a real head-scratcher when it comes time to replace their old jalopy. Should I buy or lease? Why are the payments on a leased car so much lower?
When you buy a car outright, the value of the loan is based on the whole vehicle cost, excluding your money down and the value of your trade-in. With car leasing, you end up with lower payments generally because you only pay the difference between the car's price and its expected value at the end of the lease term.
There are pros and cons to both buying and leasing. If you love having a new car every three years and don?t mind perpetual payments, then leasing is the way to go. If you plan on keeping your vehicle for many years, then buying is advantageous. Once your loan term has ended you no longer have to make monthly payments and can enjoy the car free and clear.
Try our buy vs. lease calculator below to see which might be best option for you.
You're more likely to buy
- When you lease a car, you are typically capped at 15,000 miles a year. Additional mileage can cost you up to 35 cents per mile. And that can really add up.
- If you like to personalize a car, this investment can be lost on a leased car.
- If you like the idea of ownership, you are less likely to be happy with the lease option.
- If you like the feeling of accomplishment that paying off a large purchase brings and should consider that when you lease a car, the payment ends only when you return the car.
- If the car you presently own is over 3 years old you are more likely a buyer. While not always true, you can usually drive for less if you're willing to buy and drive for at least 3 years.
- If you don't mind doing your own car repairs, you probably don't mind driving a car after the warranty expires.
You're more likely to lease
- Lease arrangements usually involve a 15,000 miles-per-year cap and charge for extra miles. If you drive very little, you may be a candidate for a luxury lease.
- When you negotiate a 24 or 36-month lease, you can be sure you'll always be driving a new vehicle.
- Although you need to maintain and repair your leased vehicle just as you would an owned vehicle, because you typically lease for 2 to 3 years, the car is normally under warranty.
- Many people prefer to drive a vehicle that is priced above their means and leasing provides the solution.
- If you don't mind not owning the car, you are free to enjoy the benefits of leasing like low monthly payments and a low down payment.
- If you own the company, and you use your car for business, check with your tax advisor. You may be able to deduct your auto expenses, including your monthly lease payment. And if the company you work for gives you a monthly car allowance, you may want to lease since you'll be able to drive a nicer car for a lower monthly payment.