Sooner or later, many drivers find themselves in the fortunate situation of getting a new car.  Choosing the make and model is an thrilling process.  Then, the dilemma of whether to lease or buy comes into play.  Is it better to pay cash up front or arrange personal financing to own the vehicle outright, or should you choose lower monthly payments and give up ownership?

As is the case with most ordinary dilemmas, there are no black and white answers.  Each option has its own drawbacks and benefits, and your final decision depends on your particular personal and financial circumstances.

Finances

Money talks, and this is the end result for the typical automobile consumer.  For many of us, affordability holds the greatest influence.  You need to question both the stability of your job, and the overall strength of your financial condition.  More importantly, you have to answer those questions  truthfully.

Red wagon

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The short-term monthly cost of leasing is significantly lower than the monthly payments when buying a vehicle, because in leasing you pay only the fraction of the vehicle’s cost that you will use during the course of your lease.  If you have money on hand, you can choose to pay the down payment and sales taxes in cash, or roll them into a loan with an interest rate decided by the loan company.  When you buy a vehicle, you are given full ownership and can truly benefit from the “freedom” of driving your new car.

If you would like to drive a luxury automobile, but can’t meet the financial responsibilities of ownership, then you’re likely a good candidate for leasing.  Unlike buying, leasing permits you to drive a new vehicle without having to pay huge upfront expenses such as a down payment.  Instead, you’ll pay a lower money factor that is comparable to the interest rate on a financing loan.  These benefits do come with a price: if you default on a payment, or  if you should have to terminate the lease early,  you will face stiff financial penalties that can seriously harm your credit rating.  That’s why it’s so imperative to have a clear view of your future financing picture, and be able to set a budget that you’ll be able to carry on.

Lifestyle

The money you have is only one factor in your decision to lease or buy.  You also need to consider your personal preferences and typical lifestyle options.  Think of what a new car will mean to you.  Are you likely to bond with the car, or will you be able to easily turn over the keys when the contract expires?  Would you like to drive a brand new car every few years, or is the pride of ownership enough to give you long-term contentment?  If you plan on driving the car for more than fives years,  bargain carefully and don’t settle for anything less than a car that you truly want.  On the other hand, if you don’t care to take on the long-term responsibilities of ownership, then you should rent.

Next, determine your transportation requirements: How many miles will you drive each year?  Do you keep up your cars properly, and on a regular basis?  If your answer is: “I drive 40,000 miles yearly and I don’t really worry caring for my car”, then you’re better off buying.  When you rent a car, you’ll be obligated to stay within a maximum mileage limit; in most cases, no more than 12,000 to 15,000 miles yearly.  Any extra miles are subject to a per-mile charge that you will have to pay when your rent comes to an end.  The car will, likewise, be scrutinized at the end of the lease term for wear and tear.  Any worn parts or damages that are considered to be beyond the scope of “normal” use will be subject to additional repair costs or penalties.

Choosing to lease or buy  is largely a personal preference.  Determine your personal needs and your financial abilities, and make an honest, educated choice.  Choose intelligently, as the wrong decision can prove to be a very pricey one.

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