Buying a new car can be an overwhelming experience for many people. There are so many options to choose from, different companies, different types, different models, different colors, and even different packages of accessories to go with it all. This gives consumers enough complexity to deal with before they even try to figure out how they are going to actually pay for it! One common question that comes up for individuals is whether or not to lease or outright buy the car. Examining this question shows that each have their benefits and costs and which is better depends on the individual consumer.
Buying Benefits
The greatest benefit of buying a car is that one day an individual will own it outright. Many people enjoy the sense of ownership, feeling as if they worked to have something be theirs. This is a concept that is dear to many Americans especially. This also has a financial benefit. If an individual is planning on holding onto the car for a longer period of time they could eventually own the car without owing anything on it, meaning they would be free of a car payment. Another small financial benefit is that fact that auto insurance is often cheaper for car owners than for car leasers.
Buying Drawbacks
One major drawback of buying a car outright, especially compared to leasing a car, is the high monthly payments. The payment plans for purchasing a car usually entail a high down payment with fairly high payments early on in the plan. This can put an individual in financial strain very easily. Similar to mortgages, financing for buying a car is split between principal, the amount actually owed for the car, and interest, the fees that the creditor is taking for giving the loan. Also similar to mortgage payments, payments in the first year or two of the loan are dedicated highly to paying off interest rather than actually repaying the principle borrowed. This fact combined with the unfortunate principle of how quickly cars depreciate in value means that very little equity, or cash value, is left in an individual’s car if for some reason they needed to sell it before paying it off.
Lease Benefits
The greatest benefit of leasing a car is the fact that 99.9% of the time the monthly payments will be lower than that of a fully financed purchase of a car. With a lease, the individual is essentially paying for only the value of a car during a certain set period of time. In other words, individuals pay only for the depreciation in value of the car during the time period they lease it for, usually 24-48 months. This means that for lower out of pocket cost an individual can keep a fairly new car all the time. This can also be beneficial for corporate Americans because there are often business tax deductions for leasing cars. Leases also allow individuals to finance more expensive cars because creditors will often not finance more than $30,000 in auto loans. After the end of the lease the individual can then choose to purchase the car at its depreciated value (most likely under $30,000), or sign up for a new lease.
Lease Drawbacks
One major concern with leases is that the individual is accepting to always have a car payment. For many individuals this is a burden that can be avoided by just buying a car. Many families are able to keep cars that they bought new for over a decade, if not longer, providing an extended period of time without car payments. This situation is not possible when leasing a car. There are also usually mileage restrictions on leasing cars, so if an individual drives a fair amount day to day leasing may not be an economic option, because if they go over their mileage they pay extra fees. Mileage limits can be as low as 12k miles the first year of the lease but typically are around 15k a year. Finally with a lease, individuals are essentially paying for the most expensive years of a cars’ life. A new car depreciates the second it is purchased or leased and driven off the lot. This depreciation continues for the life of the car, but is much greater in the first couple years.
Conclusion
Leasing can be a good option for short term users who have very specific needs such as don’t drive a lot, use it for business, etc. Buying a car can be more expensive early on but in the long term it pays off. Individuals have to decide which option is best for them based off of what they want out of their car.
Ashley Russell is a North Carolina native, hailing from Kings Mountain. She is a diehard Carolina fan who loves to watch her team play in any sport—a Tar Heel born and bred. She loves to read and write in her free time. Since high school, she has known she wanted to pursue a career that involved both reading and writing. However, she has recently discovered a love for computers, so she also hopes to incorporate them into her career. She spends her free time tutoring k-5 students in reading and writing in the Chapel Hill area. She is a second-year captain of a Relay for Life team and a participant in Dance Marathon 2011. She is also the online webmaster for the Blue & White magazine based out of Chapel Hill.
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