Should You Lease a New Car or Buy It
The Best Deal Will Save Money on Your New Car
Should you lease a new car or should you buy one? What’s the best alternative? Your car lease is a contract that allows you to “rent” or “borrow” the car of your choice. The contract usually lasts three years during which you make monthly payments as agreed upon. Leases are different from purchases. When you lease a vehicle, you don't own the car. Read the contract carefully. There are hidden costs when you lease a new car.
Whether you lease it or buy it, a new car is not an investment. It depreciates about 20% in value the moment you drive it off the dealer’s lot. A financial advisor will tell you to buy a used car, a few years old with low mileage. At this point, the depreciation of a car slows down, and your car will hold more of its value.
Here are the advantages and disadvantages when you lease a new car
The Advantages When You Lease a New Car
- When you lease a new car, the monthly lease payments are lower than when you buy. Cars with higher residual values have lower lease costs. You can negotiate your lease payments, too.
- Many new car leases do not require any money down. That is their major advantage. However, you can lower the monthly payment when you lease a new car if you can make a down payment.
- Leasing a new car will allow you to drive the latest model of your preference. At the end of the lease you can lease another new car. If you bought a car, you would have the hassle of selling it first.
- Have the dealer explain warranties offered on the car, servicing and fees for overmileage, wear and tear, and early-out for quitting the lease.
- Always ask if taxes and license fees are included in the quoted price. Make sure you understand everything you can be charged for before you sign the contract.
- All leasing contracts require you to insure the new car, but you'll want to do that anyway.
The Disadvantages When You Lease a New Car
If you always lease the car you drive, you will lock yourself into a lifetime of monthly payments. You will never get ahead of the game. On the other hand, when you buy a new car, you will own it free and clear in 3, 4 or 5 years with no more monthly payments to make.
- The terms of the new car lease will require you to service the car regularly.
- A new car lease comes with a yearly allowance on mileage, often about 10,000 miles per year. You will be charged for any extra miles you drive over the limit. The new car lease will spell out the mileage charge of 10 center per additional mile. When you're driving to work every day, that adds up quick.
- You may decide to buy the car you are leasing, either at the end of the lease or earlier. Ask how a buyout works. Your lease contract specifies the trade-in price you will pay to purchase the car. The buy-out price of the leased car, sometimes called its residual value, may be higher than its actual value.
- If your leased car has a few dings and shows wear and tear when you turn it in at the end of the contract, the leasing company can charge you for wear and tear.
- The lease contract has an early termination fee. If you change your mind after you sign the contract to lease a new car, you can ask to cancel the lease. The contract will specify a substantial penalty to get out of a lease early.
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