Lease or Buy?

January 21st, 2020 by

Lease or Buy? It is a frequently asked question, and often people do not understand leasing. Leasing is simply another form of financing. How do you decide if leasing a car rather than purchasing one is the right choice for you? It is a matter of personal preference. If you drive a lot of miles, leasing may not make sense for you. If you drive 15,000 miles or less each year, leasing may be worth consideration. Take a close look at your budget, lifestyle, driving habits and credit history before you start car shopping.

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 Benefits of Leasing 

  • You will be able to get more car for with a lower monthly payment
  • Typically, your initial down payment is lower than with traditional financing
  • The vehicles value at lease-end is predetermined and therefore protects you against devaluation
  • Your payment is based on the difference between the car’s price and what it’s expected to be worth at the end of the lease, which is known as the car’s lease-end value
  • The average lease term is three years, so you drive a car under full warranty
  • Getting a new car every few years means driving with the latest automotive technologies
  • You will have more flexibility in terms of ownership choices at the end of the lease than with traditional financing

If the stated future value is less than the actual value at the completion of the lease term you can still trade and take advantage of any available equity. In the opposite case, you walk away from the vehicle and the lender assumes ownership of the loss in equity. In the third instance, you may purchase the car for the lease end value. Who better to buy a pre-owned car from than yourself? You know its history and who’s been driving it.

On the downside, leasing limits the number of miles you can drive per year, generally 9-15,000 and you will pay a fee per mile for each driven over the limit specified in your lease agreement. You are essentially in joint partnership with the lender. Since you don’t pay on the future value of the car, if you pay to the completion of the term, you still don’t own the vehicle outright. If you choose to return the vehicle to the lender at termination, it must be in good condition with only the wear and tear expected of a three-year-old car. Any out of the ordinary wear or damage may be charged to you. You will also need a good credit score to be approved for a lease.

Alternatively, you may wish to consider traditional financing if you are the type of individual who likes to keep a car for a long time, add personal customization accessories, and do not want to be concerned with mileage restrictions. Keep in mind that most lenders require a 10-20% down payment for loan approval. Remember, in car loans unlike another financing, you only pay for the interest you use. You are not responsible for the full amortized interest. If you pay the loan off early you only pay the principal balance minus any other potential interest charges.

More questions? Talk to one of our Product & Technology Specialists. They can help you decide whether a lease or purchase is in your best interests.