When looking for a car for your business or personal use, you have the option of buying or leasing it. Should you opt to buy, you can either pay cash or get a car loan. Regardless of the choice you make, there are several things that you have to consider.
The question is, should you lease or buy a car? The choice between buying and leasing a car is never easy. Though buying a car involves higher upfront and monthly costs, you will get to own the car.
On the other hand, leasing has lower monthly payments, and you can use the vehicle as long as you can pay for it. Here’s what you need to know.
Is Buying a Car the Right Choice?
Suppose you are buying in cash. You will not have to worry about any monthly payments. Once the paperwork is in order, you have to get a suitable car insurance provider and you also get to customize the car, including the tires you need.
If you are getting financing, you need to choose between borrowing from a bank or other lending institutions. Regardless of your choice, you must consider your income and the ability to repay the loan.
You also need to consider the down payment and interest rates. Once you get the car, you can use it as you need without any mileage restrictions and you get to have full ownership of the car once you repay it fully.
Disadvantages of Buying a Car
Though buying allows you to retain ownership, it has a few disadvantages.
Cars Depreciate in Value
One of the major disadvantages of buying a car is its lower resale value. Unlike car leasing, where you can hire a newer car at the end of the contract when you back a car and need to upgrade to a newer model, you will need to sell it.
Also, you will have to go back into your pocket or get another loan to purchase the new vehicle.
Car Loans can be Risky
When you take a car loan, you have to use the car as collateral. This means the financier will have ownership of the vehicle until you pay for it. Suppose you are late on your payments or are unable to pay.
In that case, the bank or financier can repossess the car. Should this happen, you will also lose any payment you made.
Some lenders have very high-interest rates. Also, long term car loans are more expensive. Therefore, when buying a car, it is crucial that you get a lender with low-interest rates and choose a short term car loan.
According to consumer reports, car prices were reported to go beyond $46,000 by 2021. Buyers also demand the latest security features, which are only available on new car models. This makes buying cars even more expensive.
Suppose you are unable to buy the latest car model. Leasing the same car can be a great option. When you lease, you will be able to make monthly payments and only use the car for as long as you need or can afford it.
Though some leasing companies require a down payment for a lease, this is still lower than the down payment for car financing.
Benefits of Leasing a Car
There are several reasons why buyers choose to lease a car. Here are some reasons why you should consider leasing.
Lower Monthly Payments
Leasing has lower monthly payments when compared to car financing. This is because you aren’t paying back the principal. Instead, you will be using the car as you repay the difference between its value when it is new and it’s residual or the expected value when the lease ends
You will also be paying so some additional charges. This depends on the car and the leasing company. The monthly payments are also always lower than the monthly costs of financing a new vehicle. Lease payments depend on factors such as:
- Length of the lease
- Sale price
- Residual value
- Expected mileage
- Vehicle renting charges
- Taxes and fees
With low monthly payments, you may be able to use a more expensive or luxurious car than you could not be able to afford.
Several leasing contracts or terms include scheduled maintenance and free oil changes. Also, since you will be using newer models, you will have a vehicle with the latest safety features, use it during its best years and also drive a new model with the manufacturer’s new-car warranty.
This lowers the risks of breakdowns and any unforeseen expenses.
A New Car When The Contract Expires
Car leasing allows you to get a newer model or vehicle when your lease period expires.
No Resale Worries
Leasing has no hassle of selling the car, negotiating prices or haggling when you need a newer model or a different car. You get to return the car, pay any necessary fees and get another without sale advertisements or haggling.
Businesses that lease vehicles can enjoy tax deductions. The IRS allows businesses to deduct the costs of financing the lease and depreciation, which are part of the monthly payments. Not that leasing a luxury vehicle has limited tax write-offs.
Drawbacks of Leasing
Though leasing appears attractive, it has several disadvantages. One of the main cons is that you will not own the vehicle at the end of the lease. Also, the cost of leasing a car may be high, especially if you need to use the car for a long time.
Other disadvantages include:
- A limited number of miles and excess mileage penalty
- You may pay excess wear-and-tear
- Contract termination fees, if you end the contract before it expires
- You have to maintain the car in the same condition minus usual wear and tear
- You will pay end of lease fees
In some cases, you may still be responsible for expandable items like tires, which can be quite costly.
Should You Lease or Buy a Car?
Most of our customers keep asking, should you lease or buy a car? The answer to this comes down to individual driving needs, financial situation and lifestyle. With several financing and car leasing options available, you can be sure to find a deal that suits your needs and budget.
If you decide to purchase a car and are want a great and inexpensive way to maintain your tires, consider using our tire subscription service.