Car leasing versus buying a car

Before walking into the car dealership, get a good understanding whether you’ll buy a car, or lease a car, and if you plan on leasing, how to calculate the lease payments. There are major fundamental differences between buying a car and leasing a car.

Both options, leasing versus buying, allows you to drive out the dealership with a new vehicle. However, buying a car gives you full ownership over the vehicle, whereas leasing a car doesn’t. Both may have their advantages and disadvantages and deciding which option is best is a personal preference.

When you lease a car, you’re attaining the vehicle over a specified period of time and making payments every month for the use of the vehicle to the leasing company. Upon the expiration of your lease agreement, you simply return the vehicle to the dealership. Other alternatives exist if you find the need to exit a car lease early, such as a lease transfer.

What happens to the car once your return it? You have the option to buy-out the vehicle, or the leasing company may offer it for sale as a pre-owner or used vehicle for sale on the dealer lot.

Buying a car however gives you full ownership over the vehicle, and yours to do with it as you choose. Your not locked into any long term commitments to the vehicle, other than your obligation to pay out the full price of the vehicle. You can sell the car anytime you choose….though remember, a car has a tremendous depreciating value, leasing a car becomes more attractive.

If you decide to lease a car, its important you understand the details of the vehicle lease. For many, the idea is a little scary as not many people truly understand the details of auto leasing. However, for those that take the time to educate themselves, they’ll find leasing a car is rather straight forward and can be a great alternative to buying. Education is key. This will empower you to get the best deal on a lease, and of course, recognize a bad lease deal as well.

For those who get the idea of leasing a car, also find it very attractive to get into a short term lease. A short term lease is simply taking over the remainder of the lease obligations from someone else for the remainder of the lease agreement term. Why is attractive? For starters, you’re able to get into a more luxury vehicle for the cost versus buying or leasing from the start, secondly, you may avoid any down payments the original person leasing the car may have paid, and secondly, the time commitment is less than a new lease, and when you have the option at the end to buy out the lease, the cost may be significantly less depending again on how down payment was placed by the original lessor.

Lastly, taking over a lease to get into a short term lease can also benefit the consumer whereby many people seeking to end a lease early will offer cash incentives to those to take over the lease. This could be up one or two months worth of lease payments.

So which option is better, leasing a car or buying a car? Again, it’s a personal preference. Buying gives you ownership, but higher payments. Leasing, doesn’t give you ownership, but lessor payments allowing you to get into a more expensive or luxury car for roughly the same monthly payments as buying a car. The fundamental difference between leasing a car versus buying a car is:

  1. Your comfort level and whether buying or leasing suites your personal priorities and obligations
  2. Which financing options is best for you.

When your deciding on buying versus leasing, ask yourself these questions:

  • Is ownership more important than no down payment (define: down payment) and/or low initial costs?
  • Are long term costs more important to you and your family than lower monthly payments on your vehicle?
  • Is having a new vehicle every two to three years more important to you than long term vehicle costs, such as maintenance and repairs?
  • If I lease, how do I get out of a car lease early if I run into financial difficulties, or want to change my vehicle?

There is no easy decision if buying is better than leasing, and vice versa, so your decisions should be based around your financial and personal situation and obligations. The following chart may help you in your decision making.

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