Buying a car is one of the biggest investments you’ll make after your house. So, for such an investment you consider all your options beforehand. If this is your first car it is quite unlikely that you have all the cash saved up so therefore there are two ways you can do this. You can either lease a car or get yourself a car loan. Both these options have their own advantages and disadvantages and can be compared to either renting or buying a house.
When it comes to leasing the most obvious difference is that you can change your car every few years and you don’t have to bother selling your old car. You can simply hand the car over to the dealer and move on. Not many like this because some people tend to create a bond with their car.
On the other hand, when you purchase a car using a loan every repayment adds to your equity. The car is yours once the payment has been made.
Below are some things you need to consider when deciding whether to buy or lease.
Buying vs Leasing – Important Points
To make things easier let’s look at an example and base the comparison on this. Let’s say the car costs $20,000 and the period is 5 years. Both the lease and loan have an interest rate of 6% with the loan paid off in 3 years and the lease is rewed after 3 years so we are looking 2 three-year leases. The car will drive 12,000miles(7456km) per year.
1. The monthly cash flow
When it comes to leasing the monthly repayments are lower when compared to paying off a loan. This is because for a lease you are paying for the depreciation rather than the cost of the vehicle.
In our example, the loan would amount to about $608/month while the lease would amount to $350/month and then $385/month for the second lease. Since this is just an example before you decide what to get into, it’s always recommended that you use online calculators. No matter the vehicle type whether it’s a car or truck loan calculator will help you get a quick overview of the situation.
2. Initial Fees and Down payment
When it comes to lease the down payment is quite low some dealers even waive it off. This results in lower sales tax being paid as well.
Once thing with lease payments is that the mileage is locked down per year. So, if you exceed the chances are, you’ll have to pay per mileage. With a loan you can drive your car to the end of the earth and still have no problem.
4. Car condition
At the end of the lease period the expectation is that your car should be in a good condition. If you are a reckless drive a lease might not be the best option for you.
At the end of the day the real situation is that leasing a car is cheaper and good for your budget in the short run but purchasing a car will be beneficial in the long run. In our example if you bought the car using a loan it would cost you $6752 less than leasing it.