New cars: should you buy or lease?
When you’re looking to get a car, you have two options: leasing or buying. Leasing is basically renting, while buying it is owning it.
Both have their advantages and disadvantages. While some consumers swear by leasing, some say that it’s a waste of their dollars. And those who own it? Well, others might not understand why you would buy it in the first place.
If you’re choosing to lease a car, here are some things to keep in mind and consider when you head over to the dealership.Leasing a car is basically the same as renting it. For some, this is an advantage because you can get a new car relatively often, and opt for a more expensive car than you would normally buy.
Unfortunately, a few drawbacks include having to decide what you want to buy next as soon as the lease is up, as well as the mileage cap that most leases entail.
When you lease, you have no equity in the car. But this isn’t a huge deal. If you buy a car, pay it off, and sell it, you don’t get as much as you paid. So, if you’re out ten thousand dollars from the value depreciating, or you paid the same in a lease, well, it might not be a big deal.
When you choose to lease, the payment is decided on what the current difference is between the car’s cost brand new and what it will be worth at the end of the term. That’s why cars that depreciate quickly cost more to lease.
As mentioned before, there are also mileage limits to leasing a car. A car’s mileage affects its resale value, and leases generally have a limit that can be accrued each year, which is usually around the 15,000 mile range. If this is part of your lease agreement, double check what the cost-per-mile charge is. Sometimes this can be negotiated or, if you put it in a lot of miles on a commute, you might be better off buying a car instead.
If you lease a car, there are definitely taxes involved, especially if you use your car for business. In fact, you might even be able to write the entire amount of your total lease amount (as opposed to a loan of a new car).
It is also important to note that many leases require gap insurance, and if they don’t, you might want to get it anyway. Gap insurance covers the difference in cost between what the car is worth and what you owe. This will help you if there is damage, theft, or other liabilities involved. If something happens to the car, you are responsible for it (yes, even if you lease it). Because lease payments are smaller than finance payments, the difference between what you pay and the value might be large, so this will help you cut the cost. Be sure to buy this, even if the lease contract omits it, if you are leasing. It will save you worry and a potential large sum of cash in the future.
You should definitely look into leasing over buying if you like having a new car every couple of years. This will let you keep a low payment and/or drive something more expensive, while still providing you with wheels. Don’t lease your car if you are a high-mileage driver who seldom likes to switch it up–it won’t be worth your while.