Lease Or Buy Your Car

When deciding to lease or buy a car, there are many factors to consider.

There are both advantages and disadvantages to leasing a car.

For people who regularly want a new car, leasing can be a particularly attractive prospect, including the tax benefit of deducting the car if it is used for business purposes. Another benefit of leasing is that most often the monthly payment is lower than it would be if the car were purchased. While closed-end leases have mileage limits and require a payment at the end of the lease for any mileage overages or excessive wear and tear on the car, open-end leases require purchase of the car at a set residual rate that may not include any overages for use or mileage.

The disadvantages of leasing, however, can be substantial for individuals who do not want to be limited when it comes to how much or how often they use their car. Additionally, insurance is usually higher for a leased car. In many cases, a balloon payment is required at the end of the lease term, which may require an additional loan to finance that balloon payment. As a result, a three or four year lease term may turn into several additional years of car payments for individuals who choose to purchase their car at the end of the term.

Buying can also have advantages and disadvantages.

The primary advantage of buying a car is that at the end of the payments, you own the car. You can drive it for as long as you like and can sell it at any point after the loan requirements have been met. Also, insurance requirements are usually lower for purchased cars, resulting in lower insurance rates when compared to leasing a car. This can be particularly true if you have a good driving record and and other factors that work in your favor, including geographical region and age. Another benefit to purchasing a car is that there are no mileage limits, unlike a lease. When the loan is completed, there is no balloon payment and there is no payment required for excessive use of the car.

The primary disadvantage of purchasing a car when compared to a lease is that usually the monthly payment is higher. For some consumers, this can far outweigh any benefits. Many banks will only finance for autos in amounts less than $30,000, the only options may be a choice between a high car payment from a dealership-sponsored loan or a lower payment lease. Another strong disadvantage is that many car purchases require a substantial down payment, while many auto leases require only a comparatively small down payment or no down payment at all.

Ultimately, the choice between a lease and a purchase for a car depends on what factors the consumer is bringing to the table when they are shopping for cars. For consumers who are looking for low monthly payments and have few concerns about mileage limitations, a lease may be the most attractive choice. However, for consumers who want to ultimately own the car at the end of a loan and do not want to be limited by mileage or insurance requirements, purchasing a car may be the best choice.