Leasing Versus Buying

I am sure everyone at one time or another has wondered which was better when it comes to leasing versus buying a car. Every day the average automobile consumer is bombarded by the auto makers advertising offers of low lease prices which make us seriously consider which would be better. This article contains the information and details that will help you decide the best choice for you and your transportation needs along with some cautions and the costly mistakes to avoid when you lease or purchase a vehicle.

Basically leasing is the same as buying a car except that you are only buying the car for the term of the lease and a specific amount of miles. At the end the term you have the option to return the vehicle or you can purchase the car for the residual value stated on your original lease agreement. The residual value is the pre-determined amount that the manufacturer believes that the automobile will be worth at the end of the lease.

However you are responsible for the entire price of the car for the life of the lease and the entire amount will appear as a debt on your credit. When you return the vehicle in reasonable condition and free from excessive miles, wear and tear, damages, dents and dings the debt will be cleared. Should the vehicle have excessive wear or damage you will be charged to repair or replace the items or areas of the vehicle and any extra miles. This is not usually an issue because the auto makers are usually very fair about typical wear, but extra miles beyond the lease agreement will be charged at the rate stated on the lease agreement which can be $0.10, $ 0.15 or $ 0.25 a mile and sometimes even higher depending on the car. The mileage is one area to carefully consider when leasing versus buying a car because the extra mileage charge can add up quickly.

Table of Car Lease vs. Car Buying Considerations

Leasing a Car Factors

Price: When leasing a car the price of the vehicle is an important consideration because it will impact your monthly payment which is based on the term of your lease, but will not have any effect of the non-negotiable residual value therefore you will be paying the difference between the price of the car and the residual value. Many dealerships will work out your lease numbers by using the full M.S.R.P. or an even higher price on the car because most people that lease never consider the price of the vehicle.

The price of the vehicle that you are considering for a lease can and should be negotiated just as if you were buying the vehicle. The dealer may try to give you some mumbo jumbo about leasing, but it still comes down to the price of the automobile.

Lease Financing: When leasing a car the financing is figured differently than buying a car. They use what is called a money factor rather than an interest rate. The money factor is a multiplier they use to determine your payment. It is a bit confusing which the dealer and auto maker like it that way so the consumer cannot easily figure out their lease payments. This money factor like an interest rate is also determined by your credit score. The lower the score the higher the money factor and naturally so is your monthly lease payment plus don’t forget about the lease residual value.

Lease Term & Mileage: When leasing a car the term of the lease should be carefully considered because just like buying a car the longer the term the lower the payment, but that is not always a good thing. I have seen lease terms go from 24 to 60 months, but in my opinion 36 months is probably the best because you can stay within the vehicles warranty period and not have to worry about costly repairs. The standard auto lease is usually for 12,000 miles a year, but you can change that amount. You can set your lease mileage at 12,000, 15,000 18,000 or even higher, but the best is usually 12 or 15 thousand miles. Pay close attention to the mileage limitation because you could pay dearly at the end of the lease as stated above.  Know how many miles you usually put on a car per year before you choose leasing over buying. Get the Car Leasing Guide before you do something you regret.

Buying a Car Factors

Price: I have written numerous articles and posts about the price you pay for a new automobile throughout this car buying website which will help you negotiate a best price on a new car. The steps for buying a car gives you a step by step guide to getting the best price including buying a new car below invoice.

It doesn’t matter whether you are leasing versus buying a car the price is important. You need to do your research because it’s your money you could be throwing out the window here. If you need a refresher you can read how to buy a new car for all the points that need to be covered so you can spend your money wisely rather give to the dealer. Whether you buy a car or lease you need to do your homework.

Car Buy Financing: If you have read any of this car buying website you should have read about car dealer financing. This can be the most profitable areas for a car dealership and if you have not done your homework. Knowing the interest rate is important, but if you don’t know your credit score you may get sold a bill of goods when it comes financing a vehicle that you are buying.

Go back to how to buy a new car and follow the steps before you go to the dealer and end up with car buyer’s remorse.

Finance Term:
The term of financing a car is selected by you the buyer and like anything that you will be paying interest on the shorter the better. The most common period for financing an automobile is 60 months. You can choose a longer term, but the interest rate will be higher and the lower payment you get with a longer term is not usually worth the interest you will pay.

The amount of miles you put on your vehicle is not a consideration when buying. Obviously the more miles you put on your car the lower the value, but if you are a high mile driver then the answer to the question of leasing versus buying a car is to buy. That way you won’t end up paying thousands or at least hundreds for extra miles on your leased automobile. Get the Car Leasing Guide and know exactly what you are doing.

There are benefits to both choices, but when it comes to leasing versus buying the only way to make the best choice for you is to know the differences. The lower monthly payments that a car lease offers are very attractive, but make sure you understand the long term effects of leasing a car. Yes you can buy your leased vehicle at the end of the lease period, but unless you are paying cash to make that purchase you will be paying much for interest over the lease and finance period that you would be better off buying the car in the beginning.

Cautions of Leasing vs. Car Buying

If you are the type of person that has decided that you are fine with making car payments forever and never outright owning a vehicle then leasing might be a good option. Keep from have your lease term and mileage restrictions from going longer than the original warranty period because the last thing you want to do is shell out big money for a auto repair bill on a vehicle that you are leasing. Most of the information provided here is based on auto manufacturer leases, but some dealers lease vehicles through third party lenders and banks which have stipulations and charges that can included fees at the end of the lease that can amount to several hundred dollars. If you are going to lease after making sure that leasing versus buying a car fits your lifestyle I would stay away from leasing through any other lenders than the auto makers finance division so you can avoid excessive car dealer fees and lender charges. You can evaluate your lease with the Car Leasing Guide and discover all the numbers.

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