Understanding Car Buying And Leasing Choices

In today’s economy, car buying and leasing choices are numerous and should be thoroughly researched before entering into an agreement. Almost all automotive manufacturers are offering some form of lease or purchase deal.

Car Purchase
There are many people who are very happy with purchasing a car and it is the only option they consider when they need a new car. The benefits to purchasing are numerous:

• You own the car once the finance term is completed. This can be a definite advantage for anyone who values owning something for a long period of time.

• You determine the amount of insurance you carry on the car. While some finance companies have specific requirements for insurance during the period while the car is financed, others do not, and once the car is paid for, then you determine how much or how little insurance you will carry on the car.

• You can sell the car at any time. If something happens and you need to get out from under the car loan, you can sell the car or find someone to take over the payments without penalty. Also, once the car loan is paid off, then you can sell the car for any amount you choose.

However, there are also disadvantages to purchasing a car.

• The amount of monthly payments may be higher than a lease, since you are not only paying the principal, but also an interest rate to finance the loan.

• If something happens to the car, you will still be financially liable for the purchase amount.

• If the car is repossessed, you will still be financially liable for the car loan and possibly any fees or expenses incurred in repossessing the car or reselling it.

Car Leasing
Car leasing as a purchase option also has numerous advantages and disadvantages.

The advantages include:

• The monthly lease payment is usually substantially less than the monthly payment for purchasing a car. This in large part is because a car lease is based on the depreciation amount for a car, which occurs over the first few years of a car life.

• Leases are relatively short term when compared to car purchases. As a result, every few years, you will be in a new car with a new car lease.

• Many car leases today run in conjunction with the car warrantee, and as a result, few out-of-pocket expenses are incurred for routine repairs.

However, there are also disadvantages to leasing a car:

• The insurance requirements are usually substantial, including not only liability coverage, but also collision and comprehensive. In some cases, lease finance companies will also require gap insurance coverage.

• There are limitations on annual mileage. Although these limits can be negotiated at the beginning of a lease term, going over the mileage limits can result in a hefty fee due at the end of the lease, even if the car is turned in at the end.

• There is a residual due at the end of the lease term. If the car is turned in and you either walk away from the car or decide to lease another car, then you are not responsible for the residual. However, if you want to purchase the car you will be responsible for financing the residual and will have several years of car payments ahead of you if you cannot afford a large balloon payment.