This week my blogging friends have graciously agreed to take over while I take a break. Today, Miranda shares with us the topic of whether to buy or lease a car. I am actually in the market for a new car so this is actually right on time!
One of the decisions you have to make as you purchase a mode of transportation is whether you want to buy a car, or lease it. While there are those who are adamant that leasing a car is always the wrong thing to do, the reality is that leasing works well for some people. What works for you depends on your financial style, as well as your preferences.
Buying a Car
Buying a car has its own advantages. First of all, when you buy, you can do what you want with the car. Plus, you can sell it later. There are a number of savvy people who buy used beaters from desperate sellers at great prices. They can then turn around and sell the car for more than they paid later, or at least break even. This works best if you just want something to get you around town, and if you are willing to go through the process every year or two.
However, you do have to worry about an older car breaking down, and there are hassles associated with selling or trading in an older car.
Some buyers, though, like to get newer cars, and don’t even mind getting an auto loan. Even after performing the auto loan calculation, and realizing how much you will pay in interest, it can still be worth it to buy a lease return, or even a new car, if you plan to drive it for a long time, and you don’t care about the depreciation.
Buying a lease return can protect you from huge depreciation, and might even provide the remainder of a warranty. And, at the same time, you can do what you want with the car, and drive it as many miles as you wish. And, when you decide to sell, you get to recoup at least some of the money you put into the car. But there are always hassles, and you are ultimately responsible for the car, and bear most of the risk associated with owning it.
Leasing a Car
Leasing a car comes with a few more restrictions. You can’t make major modifications to the vehicle, and you might be penalized for driving it for extra miles. However, the lease payments on a car can often mean that you can “afford” to drive a nicer, newer car than you could get if you bought and had to pay principal and interest.
When you lease, you make a down payment, and then a regular monthly payment for the lease period. When the lease is up, you return the car. In some cases, the agreement allows you to buy the car at the end of the lease, with what you have already paid going toward the purchase price. In other cases, you have the option to lease a different car, at fairly attractive terms.
Leasing a car makes sense for those who like to drive a new car every two or three years, and who are more interested in monthly cash flow. Leasing a car can also reduce some of the hassle associated with car ownership. Regular maintenance performed at the dealer might not cost you anything out of pocket, and you don’t have to worry about trying to sell the car or trade it in when you are ready for something different.
Whether you lease or buy a car is less about what is “right” or “smart” and more about your individual priorities and preferences. If you want to drive a newer car, and worry less about repairs and maintenance, and if you aren’t into the whole trying to sell it or trade it in thing, leasing can be smart. Many people who commute long distances find leasing attractive because they have fewer worries about breakdowns.
Think about your specific goals, and what you hope to accomplish with your car. Then, follow a course of action that works with your own lifestyle and financial situation.
Miranda is a freelance writer and professional blogger. She specializes in financial topics. Her blog is Planting Money Seeds.