Who wouldn’t want a new car, especially if you don’t have one or have one that is on its last leg. Once you confirm that you can make the financial commitment of getting a new car, you have to decide whether to buy or lease. Leasing is a form of purchase that is quickly gaining fame and favor among many people. With its many benefits, a lot of people are preferring it over a direct purchase. A direct purchase is where you pay for an asset up front and it becomes yours completely while leasing is where the lessor (the owner of the vehicle) allows you to rent out the vehicle in exchange for rental payments over a specified period of time. So, which is better? Let us take a deeper look into the pros and cons of leasing and buying basing it on a few important factors.
Is it important for you to know that you will own the vehicle after the last payment is made? Or, are you OK with trading the vehicle in for a newer model every few years but always having to pay a monthly fee to drive it. When you purchase a vehicle cash or via financing, things are pretty straight forward. Once you pay it off, it’s yours. When it comes to leasing however, you’re basically renting. While you pay to drive and maintain it, it is not your property. As such, you are limited to the amount of usage and modifications you can make to a leased vehicle. One of the big disadvantages of leasing a vehicle is that you usually have a mileage cap. If you surpass the agreed upon total miles at the time it comes to turn the vehicle in, you could pay a steep price for each mile you go over. You could eventually choose to buy the leased vehicle from the lessor but at a price that is cumulatively higher than if it had been purchased outright. Most people would give the win to buying a vehicle on this factor but it goes back to the first questions asked
There are a lot of things to look at when it comes to finances. One advantage of leasing over buying is that, except for the initial payment to drive the vehicle off the lot, the monthly payments can be significantly lower as compared to buying. When you buy using financing, your payments are not just higher, they extend for a longer period depending on the term you select. Smaller payments and shorter terms are very appealing to many people who either don’t want to make the larger financial investment that is needed to buy a vehicle and the longer commitment that usually transpires. While the registration renewal costs may be higher for leased vehicles in some states, if considering just the short term financial investment, the win goes to leasing a vehicle.
One of the greatest advantages of a lease is that it provides a better shield against depreciation. A leased vehicle doesn’t depreciate any faster than a purchased vehicle but, the rate of depreciation which is highest the first years, aren’t taken by the lessee since they will eventually turn the vehicle in. This is mostly in the technological nature of the asset. Also, with new technological advancements and inventions taking place almost yearly, things are bound to become obsolete pretty fast. For instance, your car’s digital navigation system could become obsolete in a matter of months with the release of new models from the same and different manufacturers. If considering just the short term burden of depreciation, the win goes to leasing a vehicle.
When it comes to liquidating an asset, you have to own it. You can’t liquidate something you don’t own. If you purchase a vehicle and later want to get rid of it, you can sell it and apply the sale price to the purchase of another vehicle or whatever other expenditure you have in mind. If you lease a vehicle, you turn it in at the end of the term. A leased vehicle’s value is in its temporary use in getting you wherever you need to go. A purchase vehicle though has that same value plus the value you can extract from it when you sell it. Of course, there is more to this than just “can you sell it or not”. Many would argue that the lower cost of a leased vehicle makes up for any loss in sale value. That argument may have some ground, but in terms of liquidity, the win goes to buying a vehicle.
Flexibility and convenience
A direct purchase offers you full flexibility of how you use the asset and what you do with and to it. A lease agreement may offer you a limited flexibility in terms of how you use the vehicle but it also offers a different type of convenience: limited responsibility. If the vehicle is totaled, you “loose” less if it is leased than if it is purchased. Remember, with a purchase, you likely had a higher upfront cost and, almost always, a higher monthly cost. So, if a vehicle is totaled you lose more since, any value paid out by insurance will likely be paid to the lien holder if the vehicle was not fully paid at the time of the crash. This would also be true for a leased vehicle in this situation but with smaller financial investment, the loss is less. It would be difficult to claim a winner for this category but, crashes aside, it is slightly more convenient to purchase a vehicle.
While we cannot truly tell you what option is best for you, we hope you have a better idea of the different things to consider when considering leasing or purchasing. Whether leasing or buying, always try and get the most out of your vehicle while limiting depreciation as much as possible.
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