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Value for the Money
When you buy a car, you are paying (or financing) the full retail price of the vehicle. When you sign a lease, you are paying for the expected depreciation on the vehicle for the life of the lease. (For simple math, if you lease a $20,000 car and it is expected to lose half of its value, your lease payments will total $10,000. If you buy the same car, you pay $20,000.) This means that leases allow you to have access to a higher end car than you what you might be able to afford to buy.Equity
The most obvious benefit of buying a car is that you own equity in the vehicle. When you make payments on a car loan, a portion of the payment goes toward the principal. If you make all of your payments on time, you will own the title to the car at the end of the agreed-upon amortization schedule. With a lease, you own nothing when the lease expires. (One important point to make about vehicle equity: it’s not the same as home equity. If, for example, you have determined that it’s better in your situation to own a house than to rent an apartment, don’t jump to the conclusion that owning a vehicle is automatically better than leasing one. Houses tend to appreciate in value over the long term, whereas cars always depreciate in value.)Market and Price Fluctuation
Leases are more predictable when it comes to market value, since the amount of depreciation that you are paying for is agreed upon at the beginning of the lease, regardless of market conditions at the time when your lease expires. In other words, if you lease a car, the lessor assumes the pricing volatility risk. When you buy a car, on the other hand, you will have to cover the difference if your car’s market value is less than expected (or reap the benefits if it retains more value than expected).Mileage
Auto leases restrict the number of miles that you can drive the car. It’s typical for a lease to come with a limit of 12,000 miles per year. If you exceed that limit, you will be assessed a per-mile overage fee. This can add up quickly, especially if you take a lot of long road trips or if you commute a long distance to work. However, many dealers also offer high-mileage leases that can work out to be advantageous in a number of cases. When you own a car, there are no restrictions on mileage.Taxes
If you use your car for business at least part of the time, you can deduct a portion of your lease payments on your taxes. Leasing a car can sometimes offer distinct tax advantages for this reason. You should consult your CPA or tax advisor about the tax implications of owning or leasing your vehicle if you plan to use it for work.Maintenance
If you drive home a new vehicle—whether you buy it or lease it—the manufacturer’s warranty will cover all of the major systems, usually for at least three years. Certified pre-owned vehicles typically come with some degree of warranty coverage as well. It’s common for leases to expire before the manufacturer’s warranty runs out, which means that you won’t be paying any significant maintenance costs aside from oil changes and other regular maintenance. Longer leases may extend beyond the warranty period. If you own a car and plan to keep it for a long time, maintenance may become more of an issue after a few years.Upgrades and Customizations
If you have a desire to customize your vehicle, you will have much more flexibility and freedom to do so with a car that you own. For example, you may want to install an aftermarket stereo system, change the paint color or make any other cosmetic enhancements, a lease will make upgrades difficult or impractical. You may have to reverse any modifications prior to turning in the car at the end of the lease (aside from the fact that you’re paying to improve someone else’s vehicle).It’s impossible to give a generalized answer as to whether it’s better to lease a new vehicle or to buy one, especially since lease terms can vary widely. Not sure whether a lease or purchase makes the most sense for you? Stop in or give us a call today to discuss the vehicles and options best suited to your needs.
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If you buy a car outright and you don't have the cash to pay for it, you take out a loan. Let's assume no down payment. If the car sells for $30,000, you'll need to take out a loan for $30,000, and you may be charged interest for borrowing that money.
ReplyDeleteJohan@AMTwarranty