Anyone who is in the market for a new car can go for one of two options; buying or leasing a new vehicle. Each of these options has significant advantages and disadvantages which can help you determine which option to choose.
Your intended purpose for the car, how long you wish to drive it, your financial capacity and other factors will help you to decide whether to buy or lease a vehicle.
These methods are explained below, with detailed pros and cons;
Leasing a new car
Leasing a car means gaining temporary ownership of a vehicle for a limited usually preset amount of time.
Much like renting a property, the car will be returned after the set period is up. The typical period for leasing ranges between 2 to 4 years, though you can choose to opt for a more extended period.
Pros of leasing;
Low monthly payments: The cost of leasing a vehicle is determined by subtracting the residual value after the years of use from the price of the car.
The amount derived, which is the estimated depreciation, is then split equally over the life of the lease. Interest and other fees are also added. Therefore, the funds paid monthly can be significantly lower than if you get a car loan.
Getting a new car every three years or so means that you will be able to get access to recent technological advances.
Most new cars come with a warranty of at least three years. All significant repairs during your lease will, therefore, be covered by your warranty.
You will may have to pay tax on the price stipulated on your lease contract instead of the entire cost of the car
Once your lease is up, all you need to do is drive it back to the dealer’s lot. You wont need to sell or dispose of the car, and if you decide to renew your lease contract, you can get a new car.
The down payment required for leasing a vehicle is usually lower than that needed for buying outright. Some deals even offer the option of no down payment at all, with the full cost divided into monthly payments.
Cons of leasing;
Once your contract is up, you have to return the vehicle. The car is not your asset; therefore, it cannot be traded in for a new one or used as collateral.
The number of miles you can accumulate on the leased vehicle is limited, and this has a significant influence on the cost of leasing. Going over the set mileage attracts fines which can soon add up.
The leasing company usually has iron-clad rules about where you can take the car to and how you can use it. Seeing as the car must be returned almost precisely the same way you got it, there is no room for modifications.
Damage to the car apart from normal wear and tear attracts charges. Each leaser gets to decide what is considered as normal wear and you might end up paying a considerable amount in fees and fines at the end of your contract.
Having a good credit score is an essential factor in getting excellent leasing deals. Though people with poor credit can have access to deals too, it is usually more costly.
It is required that you hang on to the car for the contract period as breaking a car lease usually attracts hefty fees. Payments must not be missed.
If your warranty runs out while the car is in your possession, you will be saddled with repair and maintenance costs. Most vehicle companies require that only factory parts are used, and scheduled maintenance is carried out.
Buying a car
Buying entails paying for a car outright, whether through personal savings or car loan. If you take out a loan, the lender pays the entire cost of the vehicle while you pay back monthly.
It is best to use a car loan calculator to have a precise idea of how much you can afford to borrow. This way, you have a clear budget in mind before you go to the dealer.
Pros of buying
Once you complete payments on the car, it becomes your asset.
When you need a new car, your old one can be traded-in to offset the cost of the new vehicle. You can also sell it at any time you want.
There is no limit to how long or how far you can drive your car.
You can use the car for any purpose, and it can be taken anywhere. Should some damage occur, there will be no fines to pay on top of the cost of repairs.
You can choose to modify your car. You are not required to use only factory parts for repair or use a specific auto shop.
People with not so good credit scores are still eligible for good deals on car loans. The process is also more familiar and less complicated than getting a lease contract.
Cons of buying
Buying a car requires a down payment that is higher than that of a lease. This is to facilitate good loan deals and also avoid paying more than the vehicle is worth in the long run.
The amount to be paid monthly is significantly higher than the lease payments.
Once the warranty on the car runs out, you will have to pay for all repair and maintenance costs.
Unlike leasing, you might be required to pay tax on the entire cost of the vehicle.
Unlike leasing a car, the residual value of a vehicle is not present when it is bought. Hence, the value of a car after a period cannot be precisely ascertained, and the car depreciates quickly.
Whether you choose to sell or trade your car in for a new one, you would have to undergo the hassle of negotiating and making deals.
There is a lot to way up when deciding to buy or lease a vehicle, but hopefully, you can find the option that best suits your needs.