Is it better to buy or lease a new car?
BusinessUntil relatively recently, most of the big automakers didn’t really encourage car leasing to private customers, it was a part of the business that was more reserved for companies and fleets.
That has changed significantly, and today all major car companies actively promote the idea of leasing a vehicle, making it a viable option for individuals rather than buying a car outright.
Leasing a car should be viewed as a long-term rental. Many people like the idea of leasing their car, simply because it allows them to have one in a way that they might not otherwise be able to afford.
The obvious downside to leasing a car is that you don’t own the car, you don’t own the title to the car. On a practical level, this means that you can’t really make a lot of modifications or changes to the vehicle, and you must return it at the end of the lease period.
The decision to buy or lease a vehicle stems especially from the above distinction. For many, the idea of leasing has a number of benefits that outweigh the question of vehicle ownership or title ownership.
A car lease is a long-term, fixed contract, typically up to 72 months. There is a fixed monthly reimbursement cost, which is largely based on the depreciation of the vehicle’s value over the term of the lease.
There will be other conditions, such as a fixed mileage allowance for the term of the lease, and possibly once a year as well.
There is usually the option to purchase additional miles, and the costs for this must be specified in the terms and contracts of the lease.
In addition to having access to a vehicle that the individual would not otherwise be able to own, there are typically significant financial benefits to be gained from renting a car as well. Many manufacturers offer very specific financing arrangements for car leases, often at 0% interest, assuming your credit rating is good enough to qualify for it.
With any lease, all costs must be itemized and clarified at the beginning of the lease period. This includes what is commonly called an end-of-lease agreement. These are the costs associated with the wear and tear of the vehicle.
The intention of the manufacturer is to put the vehicle in a condition that would be appropriate given its age and mileage. If the car has excessive wear and tear beyond what is considered appropriate, fees will be charged to the renter to cover the difference.
These charges can be significant, but the lease must detail exactly how they are calculated and on what basis the charges will be made.
Whether buying or renting a vehicle, the same credit checks will be done against an individual and an evaluation will be done based on their credit score. This will determine whether and on what basis the credit company or financing agency will loan the person money.
This will affect the decision itself, the length or period of the loan agreement, the interest rate charged for the life of the loan, and the amount of the down payment.
The decision to buy or lease is not really financial, although leasing is usually a much cheaper option. The real decision comes down to a more emotional decision, in which the individual raises the pros and cons of the property and related costs, rather than a way of borrowing, which after a few years means they have to pay it back.